Understanding What Short Means and the Long Short Strategy in Crypto Trading

When you start your journey into the world of cryptocurrency, you’ll encounter some terms that initially seem complicated but are actually very important. One of the most fundamental concepts you need to understand is Long and Short. But what is short and how to use it effectively? This article will explain in detail what you need to know.

Position - The Foundation for Understanding Long and Short

Before diving into Long and Short, we need to understand what the concept of position is. A position refers to an investor’s ownership or holding status regarding a specific security or currency pair, depending on market conditions and price fluctuations.

In the cryptocurrency market, a position refers to the buying and selling stance on currency pairs. You may be holding or intending to hold a certain currency. There are two main positions that every trader needs to distinguish:

• Long Position: You have invested money to buy a currency pair and expect the price to rise to make a profit
• Short Position: You participate in selling on the cryptocurrency market and hope the price will fall to profit

Long Position - How Investors Profit from a Rising Market

Long – also called Buy – is when you purchase a cryptocurrency pair with the belief that you will sell it at a higher price. In this case, your profit will come from the market’s increase in value.

When you predict that a certain cryptocurrency pair is about to increase in price, the first step is to buy. However, you can’t always buy at the ideal price. Therefore, most investors do not use all their capital at once but instead split their investment into multiple buy orders at different price levels. When the price actually rises, you will close your Long positions that you previously opened and realize profits.

Example: Buy EUR/USD = Buy EUR + Sell USD. This means you are betting that the Euro will appreciate against the US Dollar.

What is Short and How to Short Effectively

Short is the opposite concept of Long. This is when you short-sell a currency with the expectation that it will decrease in value. With this approach, your profit will come from the market’s decline.

To execute a Short position, when you predict the price will fall, you place a sell order on a currency pair you believe will drop in value. However, you may not own the currency pair in your account. In this case, you will use a margin account to perform short selling. When the currency pair indeed decreases in value, you will close your Short orders and realize profits.

Example: Sell EUR/USD = Sell EUR + Buy USD. You are betting that the Euro will weaken against the US Dollar.

Trader Psychology - The Key to Success in Long Short Trading

Trader psychology plays a crucial role in the success or failure of a Long or Short position.

When many investors share the same view on the direction of the price, they will act similarly. If the majority believe the price will go up and open Long positions simultaneously, the huge buying volume will cause the price to spike rapidly in a short time. This creates a price rally effect.

Conversely, if market sentiment shifts and most investors open Short positions, i.e., short-selling en masse, the price can plummet rapidly. This is when Long position traders will suffer losses if they do not close their positions in time.

Understanding market psychology helps you anticipate strong and unexpected movements. If you notice a strong psychological trend among other investors, you can prepare or even shift your strategy accordingly.

Risk Management - An Unskippable Step

Whether opening a Long or Short position, the most important thing is to understand the risks and have a management plan. You should always set a stop loss for each trade to avoid unnecessary large losses.

Remember that buying or selling at the start of a trade is called opening a position, and the trade only ends when you close the position with the opposite action. Until you close the trade, your profit or loss is only on paper. All values will be converted, calculated, and offset based on the currency in your account when the trade ends.

Mastering the knowledge of Long, Short, and psychological management is a professional approach to crypto trading. Hopefully, this article helps you gain a clearer understanding of what short is as well as the entire Long Short trading system.