These days buying digital tokens and dabbling in crypto trading has become accessible to everyone. Getting started is simple – all you need is a Bitcoin wallet, an account at the exchanges, and a little cash.
However, crypto users taking their positions more seriously have to consider various investing strategies. The two most common trading techniques are taking the short or long position.
While they differ in approach, both track the direction of the price of Bitcoin in specific periods. If you’re looking for a way to diversify your Bitcoin trading strategies, here’s everything you need to know about taking the short and long positions.
Factors to Consider Before Choosing a Strategy
Even though crypto investing is incredibly popular, caution is advised. If you’ve ever read or watched anything about Bitcoin, you’ve probably heard that the price is volatile.
It seems that the term “volatility” is unavoidable with Bitcoin, to the point that it can be disregarded as a descriptor. But understanding the price fluctuations of Bitcoin is still very relevant as it’s what affects investors’ gains and losses.
Also, keep in mind that Bitcoin is a relatively young asset and that even all the data we have about it still makes it a risky investment.
What Is a Short Position?
In crypto, taking a short position is also known as shorting or short selling. It’s a trading strategy where users are looking to make a profit when the price of Bitcoin drops. Inexperienced traders might find the idea of making money as the price of Bitcoin fails odd, but shorting is a prevalent strategy.
The way shorting works is straightforward. A trader will borrow assets, open a position in the exchanges, and sell a current price of Bitcoin.
If the market moves as they anticipated, the price of Bitcoin drops, and they purchase tokens again. They repay the assets they’ve borrowed with interest and keep the difference as profit.
Taking a short position is also possible without borrowing assets, but in that case, even with the drop in Bitcoin’s price, the profits would be significantly lower. Many crypto traders like shorting because it has a high-profit potential and because it can be a fast-paced and exciting way to trade.
When to Take a Short Position?
Shorting only makes sense if you expect the price of Bitcoin to go down. The problem is that predicting such events is notoriously complicated.
The decision should be backed with a robust Bitcoin market analysis. Usually, the market is overbought and over-saturated, and a sharp decline is anticipated.
What Is a Long Position?
The long strategy represents the opposite philosophical approach to Bitcoin trading. Some traders prefer to purchase digital assets with the idea of storing them in their Bitcoin wallet for a more extended period.
Less experienced traders usually opt for taking the long position as it requires less activity and overall knowledge of the market. Regardless of its volatility, the price of Bitcoin has been going up for years. Unsurprisingly, many see the long strategy as the go-to approach.
When to Take a Long Position?
Choosing to go long usually comes after learning about specific changes in the crypto industry. Perhaps a blockchain project was announced that represents a high-profile partnership or a significant technological upgrade coming.
Many Bitcoin traders are always on the lookout for the moment Bitcoin’s price skyrockets as it has many times before. The market analysis usually means checking the news cycle routinely and monitoring the chatter on social media.
Developments in politics can make an impact as well. For example, when El Salvador announced that Bitcoin was becoming legal tender in the country, the price took a 17% decrease but recovered within the same day.
This is the perfect illustration of how sharp fluctuations of Bitcoin’s price can be and that those taking a long position are also taking a risk.
Which Trading Strategy Is Right for You?
Some Bitcoin traders take the long position without even realising it. They might have forgotten that they had funds in their Bitcoin wallet for years and can suddenly profit by selling assets at a higher price.
But while that may happen to some users, most make a conscious decision to take a short or long position. Both are valid options, and some traders rely on both strategies to maximise profits.
However, the shorting is more dynamic and better-suited for those looking to see higher returns faster. On the other hand, taking a long position is more about tracking the trends and seizing an opportunity when the price increases.
