How to short-sell on the crypto market.
By: Matteo Ek
Tags: Trading, Blockchain, Cryptocurrency, Ethereum, Bitcoin

Changeable exchange rate of bitcoin and other cryptocurrencies makes the crypto market very volatile.

The same as with fiat exchanges there are two main models of behavior among crypto traders: they either buy coins while the price drops (as the majority of traders do), or buy them during the peak. Due to the fact that the price always moves up and down, the professional trader needs to know how to go short.

Short selling is a fairly simple concept: trader buys crypto after the decline in price, gives back what he/she borrowed and gets profit from the purchase/sale difference. For example, you sell bitcoin for $7000, and than after the price falls to $6500 you buy it again, it means you get $500 or 7% to your pocket.

You can borrow crypto on the exchange from other market participants, who are rewarded for this in the form of interest income. The percent depends on the term of the loan at a non-fixed rate.

The most popular exchange platforms, such as Binance, Bitfinex, Kraken and others provide margin trading services — borrowing crypto at a relatively high interest rate to increase leverage, so the entire loan process for short selling is automated and configured by default.

Short selling requires trading knowledge and readiness for conducting analysis. Not everyone who is bullish can cope with the falling market.

Professional traders are fully aware of the amateur’s psychology, so they wait for the right moment when its possible to get the maximum revenue from the created pressure on the market orders. To avoid losses, you should not enter the market at the time of the process of short positions and sell at the top of the rally.

Moreover, it is better not to start working on the exchange at the moment of opening short positions in the first and last hour of the trading session, which are filled with false movements of market players. It is better to check the time zone of the exchange’s headquarters or the audience for whom the website is intended.

Maximum trading volume and demand are necessary for the price growth. The main problem for traders who play on a decline is that the market’ decline can stop the resumed sales (they can start at any time without any particular reason). If the market believes in a bullish trend, then stocks can either break through the lower level of support or go up.

The majority of traders try to purchase during the impulse, when cryptocurrency goes up or down in price, plus use different trading tactics. While following the price drop it is necessary to monitor tickers — indicators of coins. Usually the process of shrinking shorts begins in a place where market participants are ready to fast price reduction.

It is commonly believed that cryptocurrencies with low volatility are safe for short selling. The bear market has much less participants than the bull market. This means that most long-actions can suppress short positions. Keep it in mind that if the cost of a cryptocurrency has been reduced two times, from this it is possible to earn not more than 50%. If the price has doubled, then the loss will be 100%. Therefore, you need to be cautious, since the cryptocurrency market affects even the most experienced traders with its volatility and trend changes.

While working on the bearish market, you should consider using several opportunities to open a short position.

The first option involves selecting cryptocurrencies with movements that are directed toward the level of resistance, and the second involves working with currencies of minimum coiled spring or relative strength. Both methods, with a thoughtful application, allow you to find weak currencies, which in the neareast future will fall.

After the moment when the trader has determined the decreasing currencies, it is necessary to accurately plan the moment of entry to the short position. This will determine the profit of all activities. To do this, you need to use the technical analysis, which will calculate the starting point of the decline.

Triangle can be used as an indicator of when you need to stop — the movement of the graph in the form of this geometric figure shows the rate rising several times in a short period of time. With decreasing indices on crypto market it is worth paying attention to short-term price indicators. If the market shows a declining trend, but does not completely fit the characteristics of a falling market, it is advisable to investigate short-term price indicators.

The opening of a short position can bring the maximum revenue only if the coin’ price is dramatically reduced. Therefore, it is important to accurately calculate the moment of opening and closing the transaction.

Despite the fact that short selling is not the easiest way to earn, it is still very effective. There will be more falls than take-offs. Therefore, short selling is much more profitable than long one.

Due to its volatility, the crypto market requires the ability to play during the price decline. After all, If you are going to buy coins and keep them till they get more expensive, most likely you will loose all the investments. Shorting shows all the weaknesses and helps bulls to not invest in useless cryptocurrencies.