Conquering the Market with Long Short Orders: The Complete Guide for Traders

Mastering the operation of long and short orders is a prerequisite for any trader who wants to survive long-term in the financial markets. This article will analyze in detail these two opposing trading strategies – long and short orders – to help you understand their mechanisms, advantages, disadvantages, and effective application.

Basic Concepts of Trading States

In the financial world, trading state (position) simply refers to the stance a trader holds – it can be buy or sell. When you place a buy or sell order and it is successfully matched, you will be in a buy or sell state until you close the order.

Position Limit: Market Protection Rules

Each financial product and trading platform has specific regulations regarding the maximum number of positions a trader can hold. These limits are established to ensure fairness, prevent price manipulation by large investors, and protect small traders’ assets. Understanding these restrictions helps you avoid unnecessary mistakes and optimize your trading volume.

Long Orders: Betting on Growth

Long short orders, more specifically the “long” (buy), involve purchasing one or more financial instruments with the expectation that their prices will rise in the future. This is the most straightforward trading method – buy low, sell high, and profit from the difference.

Practical Use of Long Orders

Example in the stock market: You believe Tesla stock will increase in value, so you place a buy order for 1 lot at $150.42 per share with 1:10 leverage. Simultaneously, you set an automatic take-profit order at $160 (expected profit) and a stop-loss at $145 (risk management).

In the forex market: When you see the EUR/USD pair trending upward, you buy 0.01 lots at 1.05867 USD with 1:30 leverage.

When Should You Use a Buy Order?

News signals: When the market announces positive information – inflation decreases, GDP growth exceeds expectations, unemployment rates fall – these factors often create strong buying sentiment among investors, pushing prices higher.

Technical signals: Traders can rely on price patterns such as bullish engulfing candles, hammer bottom patterns, or double bottom (double bottom) formations. Indicators like MACD, RSI, or Ichimoku also support confirming an uptrend when they generate objective signals.

Real-world example: Microsoft’s price chart shows a bullish engulfing pattern after a decline, indicating a potential reversal. This is a good opportunity for traders to open a long position.

Short Orders: Profit When the Market Falls

If a long order is a bet on growth, then short order (sell) is a bet on decline. This is a powerful strategy when the market is cooling down or about to enter a bear phase.

How Short Orders Work

In the stock market: You believe Apple stock will decrease, so you place a sell order for 3 lots at $134.43 per share with 1:10 leverage. When the price drops, you buy back at a lower level, close the trade, and realize a profit.

In the forex market: You predict the USD/JPY pair will decline, so you short 0.02 lots at 136.71 USD with 1:50 leverage.

Suitable Situations for Opening a Short Order

Poor economic conditions: When inflation is high, central banks tighten monetary policy, and countries raise interest rates – these countries’ currencies tend to strengthen, making other currency pairs (like EUR) weaker relative to them. Short orders are suitable in this case. For example, in late 2022, the USD surged strongly, and many traders profited significantly from shorting the EUR/USD pair.

Technical signals: Double top (two peaks), downward trend lines, narrow price channels, or negative signals from MACD, Bollinger Bands, MA – all support the decision to open a short position.

Illustrative example: In the USD/JPY chart, the MACD indicator crosses below the signal line (bullish confirmation) while the MACD histogram widens below the baseline. This is a clear downward trend signal for traders to open a short.

Detailed Comparison: Long vs Short

Common Mistakes and How to Avoid Them

Do Not Open Long and Short Positions Simultaneously on the Same Asset

Some inexperienced traders try to “hedge” by opening both long and short orders for the same instrument at the same time. This strategy is not only ineffective but also wastes trading costs without generating real profit.

Rational Use of Long and Short

You can open both long and short positions on different instruments or markets after thorough analysis:

Example: When the USD is strong, you might:

• Short EUR/USD (Euro weak against USD)
• Long USD/JPY (USD strong against Yen)

These two orders complement each other and benefit from the USD’s rise.

How to Choose Between Long and Short

Choosing between long and short orders is not based on personal preference but depends on:

1. Trend analysis: Use fundamental analysis (economic news, company earnings reports) and technical analysis (charts, indicators)
2. Price movement prediction: Price will go up → long; price will go down → short
3. Risk management: Whether long or short, always set stop-loss and take-profit orders

Getting Started with Long and Short Orders

To master long and short orders, you should:

• Study price patterns and technical indicators thoroughly
• Practice on a free demo account
• Rigorously manage risk – never ignore stop-loss orders
• Start with easy-to-analyze instruments before expanding

A deep understanding of long and short orders not only helps you profit but is also a key factor for survival and growth in trading.