Shield Academy | How To Decide if I Should Go Long Or Short — Things To Look Out For

You’ve probably heard crypto trading terms like going long and going short, but are you wondering what they mean? In its most basic form, going short or long reflects a trader’s belief on whether the price of a cryptocurrency will come down or increase. When a trader chooses to go long, he or she is speculating that the rate will eventually increase. As a result, “going long” means that the trader intends to purchase the cryptocurrency. On the other hand, going short means that the trader expects the price to fall from a certain point and hence will sell the cryptocurrency.

In a bullish market, you’re more likely to see long positions than short positions because traders seek to profit from the price increase. A bearish market, on the other hand, will be dominated by short positions.

However, this is only more of a trend that traders generally follow. Even if the price of a cryptocurrency has fallen, some professional traders and investors may choose to buy it, while others may choose to sell it even when the price is high. There are really no rules and terms on which positions you should take. So then how will you decide whether you want to go long or short? Here’s how.

How To Decide If You Should Go Long or Short

Generally speaking, the simplest method to determine whether you want to go long on a cryptocurrency is to consider whether you genuinely believe and expect the price to rise. Depending on how long you’ve been trading, you’ll have a fair idea of which price direction the cryptocurrency will go. Often, your expectations on the rise or fall in the price of a cryptocurrency are most likely determined by the time frame in which you’re trading in.

Consider the case where you’re trading on the daily chart. If you believe the price will rise by the end of the day, you should go long by purchasing the asset on a spot exchange or initiating a long position through futures, derivatives, or other means. Unlike fiat currency markets, where values seldom fluctuate more than 1% each day, cryptocurrency prices are highly volatile and can swing dramatically in either direction in seconds.

However, if you’re looking at the charts from a weekly perspective and think the prices will go down by the end of the week, it may appear that going long may not be the right strategy.

Traders typically decide whether to go short or long based on their trading strategy. Position traders are more likely to analyze longer-period time frames, whereas scalpers are more likely to look at trades through the angle of shorter time frames. It is to be noted that the terms long or short positions do not imply the time period. For instance, opening a short position does not mean that it is a short-term deal. When an investor goes ‘short,’ they are essentially borrowing the cryptocurrency with the intention of selling it at the current market price. When the asset’s value falls, the investor will repurchase it at a lower price, repaying the crypto borrowed and profiting on the difference.

Market analysis for Crypto Trading

Regardless of which decision you choose, make sure it is not based solely on your gut feeling or opinion. Your expectation should, without a doubt, be backed up by some form of technical analysis. You must also be skilled at understanding charts and patterns in order to accurately predict price movements. It is best to combine technical, fundamental, and sentimental analyses before finalizing your crypto trading strategy.

  • For example, you can check whether the price of a cryptocurrency has bottomed or broken above an important resistance line.
  • If you’re going for technical analysis, RSI or Relative Strength Index is one of the most valuable indicators to analyze. Typically, RSI can be used to measure the changes in a cryptocurrency’s price over 14 periods (hours, days, weeks). Overbought or oversold conditions can be easily identified with RSI. For instance, an RSI of more than 70 indicates that there is significant momentum in the market, and hence the cryptocurrency is being actively bought. If RSI is below 30, it usually means that the interest in the cryptocurrency is becoming less significant and is hence becoming oversold.

Fundamental analysis can help you determine the future value of a cryptocurrency. When analyzing the potential of an investment, it essentially takes into account factors such as target market, roadmap, new releases or developments, demand, utility and tokenomics, market capitalization, liquidity and volume, partnerships, future roadmap, etc.

Market capitalization, for instance, derives the value of a cryptocurrency by considering its supply. Hence it can be assumed that cryptocurrencies with a higher market capitalization have more potential for growth. If you’re looking at liquidity and volume, this again means that a cryptocurrency with higher liquidity and volume is most likely to increase in demand; hence the price may increase.

Partnerships are another parameter that adds considerable value to a cryptocurrency and therefore causes a price increase. Big announcements and latest developments are also likely to cause changes in price depending on how successful previous developments and releases turned out to be.

And finally, to better understand the overall market sentiment, traders need to be up to date on recent market events so that they can appropriately assess it.

Long & Short Trades in Crypto: Conclusion

Certainly, crypto trading is no easy endeavor. Proficiency and experience are essential to navigate the crypto markets easily and better predict outcomes. Given how volatile cryptocurrencies are, even after all these analyses, the prices can reveal a different outcome than what you expected, without any fundamental reason behind it. Such circumstances make the analyzing process more complicated, but as long as you are aware of all other factors that impact the crypto market, the outcome wouldn’t be too bad.

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