Shorting Cryptos: Why it is important and why you should do it
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 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 a market.