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Arnaud Deblander
Jul 6, 2022 7:00 AM

How to short crypto for profits?

In the previous article we discussed the subject of profit in a bear market, the conclusion was as follows: Yes, it is possible to make profit during a bear market; in different ways depending on your skills or free time.

Today we are going to look at another way to make money in a bear market, by short trading or more commonly known as “shorting”. There are several ways to short the market and we will detail them below. Let's get started!

How to find opportunities for shorting crypto?

Before we start shorting, it would be a good idea to get the odds in our favor, wouldn't it? Of course, it is possible to short the market under any circumstances, even in a bull market, by taking advantage of short-term trends for example. Nevertheless, it is more interesting, especially when you are a beginner, to place yourself in the direction of the trend, but for that you still have to know how to recognize a market in a downward trend.

For a downtrend to be validated, we first need a new low, the prices will then have fallen below the previous support level which did not hold. Then, because rebounds exist even in a downtrend, we will have to observe a lower high at the end of the rebound to validate the transition to a downtrend.

Alternatively, we can also use a moving average to determine the direction of a trend. One way to do this is as follows: If prices are trading below their 50 and 200 day simple moving average and the shortest is below the longest, you are in a downtrend.

5 ways to short cryptos

Direct Shorting

This is the simplest way but it is not without risk. To put it simply, you borrow crypto-currencies on an exchange and sell them directly. Then, to pay back your loan you wait for the price to drop. When it does, you buy the currency and return the borrowed coins to the exchange. This way, you earn the difference between the two prices.

Of course the reverse is also true! If the price doesn't go down and you're wrong, you'll have to buy the crypto-currencies back from the exchange anyway, thus taking a loss.

Contracts For Différences (CFD)

A CFD is a financial product that allows you to invest in the rise or fall of an underlying asset. This is why a CFD is also called a derivative contract. Thus, the CFD trader will never own the securities he speculates on. The underlying asset can be a stock, an index, a cryptocurrency, a precious metal, an energy, a commodity, a currency pair, a bond, an ETF...

Thus, the trader will have the opportunity to speculate on the rise or fall of the CFD, knowing that in a very large majority of cases, the CFD will take the same direction as the underlying asset. You can short cryptos using CFDs on most forex brokers.

Futures

A future is a contract in which two parties agree to buy or sell a specified quantity of an underlying asset (such as a stock or cryptocurrency) at a predetermined time and price.

A future is a firm commitment that must be fulfilled on its maturity date by its counterparties: the buyer of the future must buy the underlying asset at the agreed price and the seller must deliver the asset.

There are also perpetual futures contracts, without an expiration date, but which require a funding fee, unlike futures contracts with expiration dates.

Put Option

A "put" option is the right (not an obligation) to sell an underlying asset (in this case crypto) at a specified price, during a given period. In return for this right, the potential seller pays a premium (the option price) to the buyer.

Put options allow you to position yourself against the market because instead of taking ownership of an asset, you are speculating on its price movement. Since they can be used to sell short in the market, you can use put options to cover your other active positions, in case one of them loses value.

Predictions game

Another way to bet on the decline of crypto is through prediction games. You can win GALA for example by correctly predicting the price of a crypto, which can be down.

What indicators should I use?

As we have already discussed together above, moving averages are excellent indicators that will help you in the development of your short strategies. You can use them as a filter and only open short positions when prices are below their average.

Additionally you can also use a momentum indicator such as the RSI to trigger your trade, when it crosses its overbought zone from below, for example.

Conclusion

There are many ways to make money during a bear market and of course shorting the market is one of them. To do so, you have many possibilities both from a technical point of view, and from a strategic point of view.

It will be your responsibility to test what works best for you and once you have done that, to keep your emotions in check.

Having said that, shorting crypto is not the only way to make money during the bear trend. It is still possible to make profits from longing in the crypto market. Finding a good project with proven results is where you should start. Take SuperBots’ Ultimate Scalper bot for example. This superb bot made a combined profit of +27.975% during May and June, when the market was bloody and fear factor was high. If you are still suffering losses from either trading or buying and holding your crypto, it’s time you give SuperBots a shot!

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