Shorting Cryptocurrencies: Why it is important and why you should do it

in bitcoin •  last year 

Years ago, when I first started trading, I made the foolish and naive choice to try trading stocks. When you’ve never heard of forex or futures, you only know about stocks. Stocks are a long-biased market. Whenever a particular stock I was trading was under a ‘short attack’, I got really mad. I got pissed. I hated shorting. I thought people who shorted were the most evil and vile kinds of traders ever. WHO would ever want to bet against the stock market or a stock? Are they not human?! Do shorters have no soul?! It wasn’t until I started to trade futures and forex that I realized that my view of people who short was totally wrong and foolish, but I didn’t realize how important shorting is.

If cryptocurrencies are the first thing you’ve traded, then the odds are you don’t have access to shorting and/or you don’t know how to short. Furthermore, you probably hate people who short. If you’ve spent any time in the Tradingview Crypto chat room (I really encouraged everyone to avoid places like that), then you’ve probably seen people brag about this short and that short. You’ve probably read on forums or on Twitter or any other social media the real sour attitudes that bears (people who like to short) have when prices are falling. While your position is dwindling in value, people who short are the opposite: they are extremely happy!

One of the great disservices I’ve done here at CoinClarity is to not explain, in any detail, why you all should learn about shorting and do it.

Reason 1: It’s the fastest way to make a profit.

There’s an old saying in the stock market: Markets take the stairs up, and the elevator down. Basically, markets move slower when gaining value and faster when losing value.

Let’s use this chart as an example.

We’ve all experienced a week of slow but deliberate moves higher, only to see those gains wiped out in one or two days. In this case, we see the entire value area of 8 days being wiped out in 3 days. You can make significantly more money on the short side of a market – because fear is a greater tool for price action than hope or euphoria. This brings me to my next point.

Reason 2: Shorting protects your profits.

Trading absolutely sucks when you can only go long/buy. That’s a huge disadvantage. It’s massive. I really can’t stress this enough. This is kind of like playing football with only one shoe, no pads, and no mouthguard. You are missing out on so many trade opportunities when you decide to not short. The only reason why you would not want to short is if you are a hodler. If you are trying to trade cryptocurrencies and not short, you are not trading. You’re… I don’t know – it’s not trading. Shorting means you make money on the way up and the way down. Looking at trade opportunities from both a long and short perspective prevents us from getting into tunnel vision and having a singular bias. If you’re not shorting, then you have blinders on. Which brings me to the next point.

Reason 3: Unbiased

If you trade forex or futures then you have no problem with shorting. It’s part of the ‘game’. It’s as easy to short as it is to go long in those markets. Like I said in Reason 2; trading means finding long and short opportunities. When you are looking for profitable short trades, you avoid the frustration that is inherent when only taking long trades and trying to force those trades. Having a singular bias as a trader is dangerous, and being on the short side keeps you level-headed.

Reason 4: Shorting provides honesty and integrity.

This is one of the most important aspects of traded markets: Shorting provides honesty. When a stock, futures contract, forex pair or crypto comes under a ‘short attack’, it’s a sign of weakness. When things get shorted, it’s because traders and investors don’t believe in the asset. Heck, you don’t even need a short attack for that! You just need a classic good ol’ sell-off (which are very, very frequent). Sell-offs and short attacks are the same things. But shorting makes investors and the rest of the bulls provide evidence for the value and price in the market.

Shorting is a question: Is this coin really worth this much?

The answer and the burden of proof rests on buyers and bulls to support the traded value.

Shorting is all about making the participants in a market come to a very clear consensus on what something is worth. Shorting is necessary to provide honesty and integrity in any market.

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I love this article, because it shines a new light at looking how trading works to me. This sure might be a help, but as you stated in the introduction, while shorting might seem to have more benefits for a trader, it simply is the worst to people who are going in long. Thus this sets up a new question: doesn't it mean that traders who short with the only intention of shorting, have more power and leverage to bring the stocks to a fall than people who are investing in long? Or does it just seem that simple to me?

Very expository, wonderful points raised.. thanks for not holding back

Yes, I felt the same thing about people who shorted Bitcoin but I realize I need to learn how to do it. And I was bummed for a while because I figure where I could short Bitcoin as a US citizen until someone told me I could do it on Kraken. Now I'm getting set up and ready to learn.

Kraken is probably one of the more accessible and easiest methods for US based peeps (like myself). I'm so thankful that our powerful overlords in Mordor on the Potomac who sit in the shiny tower of the SEC know how I can best risk and spend my money. It always feels good to have their bindings of government keeping me safe.

Great comment! You should sign up with @dustsweeper!

Gotta love how our "free market" economy works. lol It's amazing how well they rig it and how little the sheeple care.

lol I know. Right?

This is a really insightful and meaningful explanation. I've never heard these points. Thanks for your perspectives!

No problem and thank you!

i always remember my self this: Markets take the stairs up, and the elevator down. Nice post

Thank you!

I'm a holder and prefer taking profits in crypto but yes sometimes the market is obviously over inflating so shorting is not a bad option but I would rather coin hop or hold profit in fiat for a short period.

totally agree

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good points

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Is kraken the only one or their are more exchanges with that facility?
As of now i am only lending few cents on poloniex.

I think Kraken is far superior to Poloniex when it comes to shorting.

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Thank you for this post... i am please tell us how to short crypto? How does one make money on the downside?

You can use Kraken, it's the best option US based traders have.

Right. Sadly their platform is working with underwhelming speed and often transacations are refused or your are being thrown out of their system when many people are online. They are saying they are upgrading the systems but they dont seem to make good process.

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