Shorting Bitcoin (BTC): An Easy-to-Follow Guide
In times of a bear market, many investors are frightened because of massive losses they may have at a certain time. But many traders are count surplus while others lose. This is how short circuit becomes a great opportunity for many traders in order to possibly get a large return.
For many professional crypto traders, learning how to short Bitcoin (BTC) is a very important skill. Shorting is a sophisticated investment or trading technique that includes an extremely high level of risk.
On the other hand, if you can master the skills of short-circuiting Bitcoin and other cryptocurrencies you can potentially make huge returns when the crypto market is down and crashing.
Bitcoin (BTC) is one of the best choices for shorting among other digital currencies. It is price volatility presents nimble traders with a huge opportunity to make profits during negative price fluctuations.
Learn more details in this article about shorting Bitcoin when the crypto market is down.
A Guide to Shorting Bitcoin (BTC)
Shorting allows traders take advantage of the price drop of cryptocurrencies and other financial assets. When traders or investors can see a potential decline in the price of Bitcoin and other assets, they can achieve great returns by shorting. In shorting, a trader bets against the price of an asset.
Is Shorting Bitcoin Important?
One can short Bitcoin for significant reasons. These include:
Be aware of price volatility
Knowing Bitcoin’s history, its price value can quickly rise and fall. Many traders have one high risk appetite and are attracted to extremely volatile assets that can potentially reap huge rewards or similarly produce huge losses.
Some traders trust pure luck and speculation when shorting Bitcoin; however, others use a systematic approach which is based on knowledge and experience.
Hedging the risk of a huge portfolio
A trader or investor short their assets to hedge the risk of their large portfolio. For example, when a Bitcoin holder speculates or sees a potential price drop, he/she decides to open a short selling position.
One of the ways to hedge against potential losses when trading or investing in Bitcoin (BTC) and other digital assets is to use a trading software with a high success rate such as the Bitcoin Up app.
Becomes Targeting against skepticism
There are traders who short Bitcoin only in the short term and have bearish sentiments towards the market. They keep up to date with the latest developments in Bitcoin and the blockchain.
These traders provide have an objective mindset and do not allow opinions to interfere and influence their decisions.
Valuation
Some investors wait for a downtrend before deciding to short Bitcoin as they speculate that Bitcoin is overvalued or exists in a price bubble. An investor or trader who trades in Bitcoin by means of valuations primarily follows a fundamental trading style, studying the speculated inherent value of an asset against the current market price.
What you need to understand when shorting Bitcoin
In some special times, shorting Bitcoin becomes more complex. For example opening a short position against a long-term uptrend is risky. Bitcoin has a way of gradually increasing in price value.
Conversely, this crypto asset can shed thousands of dollars in market value in minutes. These conditions put into perspective why shorting becomes more complicated for beginners to implement the strategy successfully.
Consider the mentality of other traders in the crypto market
It is also important to consider the mentality of other traders on the market. When an investor short Bitcoin and the price immediately starts to rise rapidly, he/she must buy back his/her holdings. Unfortunately, any other trader who makes a similar decision will have to accomplish the same task.
This immediate effort to repurchase Bitcoin greatly increases its market value. When this occurrence takes place, it is called a “short squeeze”. Short clamps add your losses in this position.
An investor or trader should be careful when evaluating the market to prevent this type of scenario.
Final thoughts
Shorting is one of the best ways to make money when the price of an asset falls. However, if you are a beginner in trading and investing and are not completely familiar with the crypto market, you can quickly lose your positions.
To avoid this, one must study and master how shorting works. On successful master this techniquecan a trader possibly generate huge returns.
Disclaimer: Views and opinions expressed by the author should not be considered financial advice. We do not provide advice on financial products.
