Long and Short in crypto trading - How to profit from both market directions

When you first step into the world of cryptocurrency, you’ll encounter many unfamiliar terms. Two of them—Long and Short—are fundamental to understanding trading strategies. But what exactly are Long and Short? And what is the trader’s mindset when these two strategies happen simultaneously in the market? Let’s explore the essentials to help you become a successful trader.

Position – The Basic Concept of Every Trade

Before diving into Long and Short, we need to understand what a Position (or trading position) is. A position simply refers to your holding or trading order for a specific currency pair under certain market conditions.

In the crypto market, a position is understood as a buy or sell stance on currency pairs. Traders can open positions in two main directions: a buy position (long) when they believe the price will rise, or a sell position (short) when they forecast a decline. Each position corresponds to different expectations about future price movements.

What is Long? An Upward Price Bidding Strategy

Long—also called Buy—is when a trader purchases a cryptocurrency pair with the expectation of selling it later at a higher price. In this case, you profit from the market’s upward movement.

How does this process usually work? When you predict that the price of a certain currency pair is about to increase, the first step is to open a buy order. However, you might not always buy at the best price. Therefore, most traders divide their capital into multiple buy orders at different price levels. When the price actually rises, they close these buy orders to realize profits.

For example: When you buy EUR/USD (buying Euro and selling Dollar), you expect the Euro to strengthen against the Dollar. If your prediction is correct, you will profit from the price difference.

What is Short? Making Profit from a Falling Market

Short—also called short selling—is when a trader sells a currency with the expectation that its value will decrease. With this strategy, you profit from a significant market decline.

Short selling works differently from Long. When you want to open a short position, you place a sell order on a currency pair you forecast will drop in value. However, you may not own the currency pair, so you need to use leverage and margin to execute the short sale. When the currency pair’s price drops, you close your short positions to realize gains.

For example: Selling EUR/USD (selling Euro and buying Dollar) means you expect the Euro to weaken against the Dollar. If your prediction is correct, you will earn a profit.

Trader Psychology: When Long and Short Occur Simultaneously

Interestingly, trader psychology greatly influences prices. Why? Because when the overall sentiment among traders is the same, they tend to act together.

When Long dominates: If most traders forecast that a currency pair will rise, they will all rush to buy. A large volume of Long orders at once can cause the price to spike rapidly in a very short time. This is called “FOMO buying”—the fear of missing out.

When Short dominates: Conversely, if the general sentiment is negative and traders expect a sharp decline, they will all sell short. A large volume of Short orders simultaneously can cause the exchange rate to plummet quickly. This is called “panic selling.”

Long and Short positions are closely related to speculative activities. When one side dominates completely, the market can become extremely volatile.

How to Trade: From Opening Orders to Taking Profits

Buying or selling a currency pair at the start is called “opening a position,” and closing it for profit or loss is “closing a position.” All buy and sell values are converted into profit or loss, which is reflected in your account currency.

Important to remember: Until you close the position, the profit or loss is only on paper (floating profit/loss). You only realize actual gains or losses when you close the trade.

Risk Management – The Key to Success

Whether Long or Short, you must understand that risk is always present. If your prediction is wrong, you will incur losses. Therefore, setting a “stop loss” in each trade is crucial to prevent unnecessary losses.

Always remember: Long and Short are powerful tools to profit from two-way markets, but they can also cause significant losses if not managed properly. Understanding market psychology, mastering skills, and strictly following risk management rules will help you become a successful trader in the crypto world.