Long and short positions are the two basic trading strategies that every beginner learns when they first start trading. Long-term traders expect the price of their assets to go up, while short-term traders aim to buy low and sell high in order to make a profit.
If you are new to the crypto market, you might have heard or seen these terms used frequently by traders. Going long or short on a currency such as BTC or USDC is a form of derivative trading.
While not entirely understood by novices, these words are important to understand as a trader. This article explains core concepts for newcomers who are expected to flood the crypto market.
Overview of Long Trades in a Crypto Market
Long and short trading is a simple and easy-to-understand concept. Its basic principles are crucial for every trader. Long and short positions are two potential price movements that traders use to secure a profit.
In the context of long-term investing, the idea is to put money into the market in order to earn interest or sell when the price appreciates above the price at which you acquired an asset.
Long-term crypto investors typically hold the assets they acquire for a year or longer. The term HODL—a typo meaning ‘hold on for dear life’—is used to describe this practice. Thus, for an investment horizon of more than a year, an investor should have a grasp of the fundamentals and financial history of the company being invested in.
The Basics of Short Trades in Crypto Market
Short term trades are just as they sound. In crypto, a short term trade is one that lasts anywhere from minutes to a few days. Short term trades offer investors the ability to make significant profits in short periods of time which makes it perfect for high frequency trading.
Short term trading, also called day trading, is the act of speculating on the price movement of a currency or security within a short time period. Short-term traders take positions and then close them before the end of trading in order to minimize potential losses. In general, they attempt to make profits over periods lasting minutes, hours or days.
What are the various crypto trading strategies, and how do they differ?
As the crypto space grows, there are strategies that experts use to trade safely and maximize their chances of success.
Day Trading
Day trading is a popular strategy used by crypto traders, who buy and sell their digital assets on the same day. This type of trading requires constant attention to the market and the ability to profit from fluctuations in value.
RANGE TRADING
The idea of support and resistance levels is to analyze where the market participants are willing to buy or sell. When a coin hits a support/resistance level, there can be an immediate shift in sentiment.
If a cryptocurrency’s price gets stuck at a given support or resistance level for an extended period of time, it is likely that the market participants will change their minds and act accordingly.
HIGH-FREQUENCY TRADING (HFT)
Algorithmic trading is a strategy used by quants (quantitative analysts) to trade on the financial markets. It involves creating algorithms and/or trading bots that help traders quickly enter and exit positions in crypto assets.
Margin Trading
Margin trading allows traders to open short and long positions, provided that they put up collateral. The amount of the loan is equal to the trader’s deposit minus the amount of collateral. Margin trading is similar to credit leverage and practically increases a trader’s deposit by using a loan.
For instance, short selling TRON (TRX) is a way to profit from a fall in the TRX price. You can take advantage of this trading strategy with an account that allows you to take short positions, including margin trading accounts.
Long Trades vs. Short Trades investments: Which is better in crypto?
As mentioned, there are different types of investments, each with its own advantages and disadvantages.it is possible to achieve outstanding returns on your capital when trading assets in the short term.
However, it is also possible to lose money quickly with such an approach. A more conservative strategy involves investing in assets over a longer period of time with less frequent trades.
Another significant difference between long and short trades is the use of margin. In long trades, you can use your regular brokerage cash account to buy stocks. But in short selling, or shorting, you need a margin account with your broker.
The greatest benefit of a long-term investment strategy is that the investor can avoid the emotional stress of checking cryptocurrency prices on a daily basis. Short-term investors have the advantage of having stop losses in place, which would pull them out of the market whenever prices begin to crash, or go against them.
Thus, these investors can be saved from those pitfalls and even have cash left over to buy the dips to take advantage of the rally that comes immediately afterward.
In Conclusion
Investors differ in their comfort levels with different types of investments. Some people prefer a short-term approach that might give them more frequent opportunities to trade, while others prefer a long-term strategy that can help them avoid the stresses of day-to-day trading.
Long-term investing offers the best chance for building wealth over time, especially in volatile markets. While short-term investing is common among day traders, it exposes investors to greater risk than other trading strategies.
Determining the optimal trading strategy for you is a matter of understanding the markets, researching available instruments and assessing your risk profile.
