How to Trade Long
In the world of financial asset trading, the concepts of “long” and “short” have long become a common phenomenon for traders. These terms refer to strategies for buying or selling assets with the expectation of a change in their value in the future. In the context of the crypto market, these strategies are used to trade digital currencies, such as Bitcoin, Ethereum, and many others.
It’s important to note that, at the time of writing this article, in 2023, the cryptocurrency market is in a state of “crypto winter”. This is a term that describes a prolonged period of decline in the market, characterized by falling prices and a decrease in investor activity. Under such conditions, the “long” strategy can carry risks for the trader. However, with the right knowledge and approach, long-term investments can bring significant profit, especially when the market enters the phase of “crypto summer” or growth again.
In this article, we will explore how to apply the long strategy in the crypto market, and will also delve into the basics of technical and fundamental analysis, necessary for successful trading.
Definition of the terms “long”, “short”, and “crypto market”
“Long” is a term used in trading that signifies the buying of assets with the expectation of their future growth. A trader entering a long position buys an asset (in this case, cryptocurrency) expecting that its price will increase in the future, and they will be able to sell it at a higher price, thus making a profit.
“Short” is a trading operation that involves the sale of a borrowed asset to repurchase it later at a lower price. A trader entering a short position expects that the asset’s price will fall. In the context of the crypto market, a trader “borrows” cryptocurrency to sell it instantly. Later, when the asset’s price falls, the trader buys it back to “return the loan”. The difference between the selling and buying price is their profit.
“Crypto market” is a specialized financial market where transactions with cryptocurrencies are made. This can include buying and selling cryptocurrencies, exchanging one cryptocurrency for another, and investing in cryptocurrency assets. The crypto market is characterized by high volatility and 24/7 availability, which makes it an excellent place for trading but also entails higher risks.
Long vs. Short: Main Differences
Long and short strategies are the two primary approaches to trading in financial markets, including the crypto market. While both are aimed at profiting from price fluctuations, they are applied under different expectations regarding future market movement.
Explanation of long and short strategies
Long is a strategy in which a trader buys an asset expecting its future growth. In the case of cryptocurrency, a trader might buy, for example, Bitcoin, assuming that its price will increase in the future, and eventually be able to sell it at a higher price.
This strategy is most suitable for a “bull” market, that is when the prices of assets are generally rising or expected to rise. Traders using long strategies usually look for assets with positive prospects that could lead to an increase in price in the future.
Short is a strategy in which a trader borrows an asset and immediately sells it, expecting a price drop. If the asset’s price indeed falls, the trader buys it back at a lower price to return to the broker. The difference between the selling and buying price represents the trader’s profit.
The short strategy is most effective in a “bear” market, that is when asset prices are generally falling or expected to fall. Short positions allow traders to profit even during an economic downturn if they correctly predict price movements.
It’s important to note that both strategies involve risks, and traders need to consider a multitude of factors, including the current economic situation, the specifics of assets, and their personal financial goals, before deciding to enter a long or short position.
Understanding the Basics of Trading on the Crypto Market
Like any other financial market, the crypto market operates based on supply and demand principles. Cryptocurrency prices change depending on the number of people wanting to buy or sell a particular cryptocurrency at a given time. If demand exceeds supply, prices increase, and conversely, when supply exceeds demand, prices fall.
However, unlike many traditional markets, the crypto market operates around the clock, without breaks for weekends or holidays. This can lead to greater volatility, as news and events can impact prices at any time of the day.
Volatility is the degree of price changes over a certain period. The crypto market is characterized by high volatility, meaning that prices can fluctuate significantly over a short period. This creates opportunities for traders to profit from rapid price changes but also involves increased risks.
Review of Major Cryptocurrencies for Long Trading
In a long strategy, traders usually look for cryptocurrencies with positive prospects. Some of the major cryptocurrencies often used for long trades include:
- Bitcoin (BTC): Considered digital gold in the crypto market, Bitcoin is often chosen for long positions due to its wide recognition and usage.
- Ethereum (ETH): Ethereum is the second-largest cryptocurrency by market capitalization after Bitcoin, and its blockchain technology is used by many other projects, creating high demand.
- Binance Coin (BNB): This cryptocurrency belongs to one of the world’s largest crypto exchanges, Binance. Its value can rise due to increased use of the Binance platform.
- Litecoin (LTC): This crypto asset, created as an alternative to Bitcoin, also enjoys popularity among traders due to its speed and reliability.
- Polkadot (DOT): Polkadot is a multi-chain platform that allows different blockchains to interact with each other. Its unique approach makes it appealing to investors.
It’s important to remember that choosing a cryptocurrency for long trading should be based on careful research and analysis, not just its current place in capitalization rankings.
How to Analyze the Market for Long Trading
As in traditional trading, the primary tools for predicting market movement and making informed trading decisions in crypto trading are technical and fundamental analysis. Each has its role and importance, and they can be used in combination for the most comprehensive understanding of the market.
Technical Analysis: What It Is and How to Use It in Long Trading
Technical analysis is based on studying price charts and trading patterns to forecast future price movements. Key components of technical analysis are indicators, such as moving averages, the relative strength index (RSI), MACD, and others, as well as chart patterns, such as “head and shoulders”, “double bottom”, etc.
When trading long, traders can use technical analysis to identify bullish trends or market reversal points, which may indicate an opportunity to enter a long position.
Fundamental Analysis: How to Interpret News and Data on Cryptocurrencies
Fundamental analysis involves assessing economic, financial, and other qualitative and quantitative factors to understand the true value of an asset. In the context of cryptocurrencies, fundamental analysis can include studying blockchain technology, market capitalization, usage of the cryptocurrency, use cases, regulatory status, news, and other data.
When trading long, traders can use fundamental analysis to identify cryptocurrencies with strong fundamentals and good potential for growth in the long-term perspective. This could include looking for cryptocurrencies with unique features, significant partnerships, or positive regulatory news.
Strategies for Long-term Trading
Choosing the right strategy depends on many factors. First, it’s important to determine your financial goals and how much risk you’re willing to take. The second thing to consider is your trading style. Are you an active trader, ready to spend hours at the monitor, or do you prefer a less intensive approach and are ready to hold positions for weeks or months? Your knowledge and experience in technical and fundamental analysis should also be taken into account.
Main long-term trading strategies on the crypto market
Buy and Hold is the simplest and most popular strategy, especially among beginners. It involves buying cryptocurrency and holding it for a prolonged period, regardless of short-term market fluctuations.
Swing Trading is for those who want to take advantage of short-term price swings. Swing traders try to “catch” trends and exit positions when they believe the trend has exhausted itself.
Position Trading is for traders who rely more on fundamental analysis and long-term economic indicators. They can hold positions for many months or even years.
Dollar Cost Averaging (DCA) involves regularly (e.g., every week or every month) purchasing a certain amount of cryptocurrency, regardless of the price. This method can help smooth out the effect of short-term volatility and reduce risks.
How to Trade Long-term on the Cryptorobotics Platform
Cryptorobotics is a multifunctional platform for automated cryptocurrency trading. It offers a range of tools and opportunities for long-term trading, including convenient charts for analysis, support for various exchanges, and tools for automatic trading.
Features and Benefits of the Cryptorobotics Platform
- Multi-exchange support: Cryptorobotics supports multiple cryptocurrency exchanges, allowing traders to trade on different platforms from one interface through API integration.
- Analysis tools: The platform offers advanced technical analysis tools that help traders make informed decisions.
- Trading automation: Cryptorobotics allows users to set up automatic trading strategies based on their preferences and market conditions.
- Security: The platform uses advanced security technologies to protect user funds and data.
Long-Term Trading Guide on the Cryptorobotics Platform
- Registration and login: First, you need to create an account on Cryptorobotics and log into the system.
- Exchange selection: Select the cryptocurrency exchange where you want to trade. Enter the necessary data to connect to the exchange.
- Market analysis: Use the platform’s technical and fundamental analysis tools to make an informed trading decision.
- Setting up a purchase order: After choosing a cryptocurrency for long-term trading, set up a buy order. Specify the purchase price and volume.
- Position management: After opening a position, monitor market dynamics and manage your position accordingly. You can use stop-loss and take-profit orders for automatic position closing when a certain price is reached.
- Closing a position: When you are ready to close your position, set up a sell order at your chosen price (if you are not using the automatic trading tool).
Remember that trading in the crypto market involves risks, and you should always base your decisions on knowledge and analysis.
Risk Management in Long-Term Trading
Risk management is a key element of successful trading in the cryptocurrency market. It’s not just about preventing losses, but also involves identifying, evaluating, and prioritizing potential risk scenarios. It’s important to remember that risks are an integral part of trading, and while they cannot be completely eliminated, they can be minimized and controlled.
Determining the Level of Risk
Determining your level of risk is an individual process and depends on many factors, including your financial situation, your risk tolerance, and your long-term financial goals. Some traders are willing to take on greater risks for the possibility of high profits, while others prefer a more conservative approach. It’s sensible to start small and gradually increase your level of risk as you gain experience and understand the market.
How to Manage Risks?
- Stop-loss orders: This is one of the most effective tools for managing risks. It automatically closes your position when a certain price is reached, preventing further losses. Stop-loss can be set at a certain level from the entry point or as a percentage of your initial capital.
- Diversification: Investing in different assets can help reduce the overall risk of the portfolio. If one asset falls in price, another may rise, smoothing the overall fluctuations of the portfolio.
- Risk per Trade: It’s important to determine the maximum risk per trade that you are willing to take. A common practice is to risk no more than 1-2% of the total capital on one trade.
- Following the Strategy: It’s important to have a clear trading strategy and stick to it, regardless of how market events develop.
- Continuous Learning: The cryptocurrency market is constantly changing, and traders need to constantly learn and develop to keep up with the latest trends and risk management strategies.
Examples of Successful Long-Term Trading on the Crypto Market
The following examples of successful long-term trades on the crypto market illustrate how different strategies and approaches can work. It’s important to remember that past successes do not guarantee future results, and every trade should always be thoroughly analyzed.
Example 1: Long position on Bitcoin in 2010
One of the most famous examples of a long position is early investment in Bitcoin. Those who bought Bitcoin in 2010 for a few cents or dollars and held onto it until today could have made a huge profit. This illustrates the power of the “buy and hold” strategy in the crypto market.
Lesson: The importance of long-term investing and belief in technology. Cryptocurrencies can be very volatile in the short term, but they can offer significant profit potential in the long term.
Example 2: Long position on Ethereum in 2017
At the beginning of 2017, the price of Ethereum was about $10. By the end of the year, it had reached nearly $1400, providing incredible profits to those who went long at the beginning of the year.
Lesson: The cryptocurrency market can be extremely fast and volatile, and sometimes significant profit opportunities can arise. However, thorough analysis should always be conducted, and you should never invest more than you are willing to lose.
Example 3: Long position on Chainlink in 2020
Chainlink is a cryptocurrency that started in 2020 with a price of about $2 and reached $20 by August of the same year. This tenfold increase shows how even smaller and lesser-known cryptocurrencies can offer significant opportunities for long-term trading.
Lesson: Don’t just focus on major cryptocurrencies like Bitcoin and Ethereum. There are thousands of different cryptocurrencies, and many of them can offer significant profit potential. However, with greater potential comes greater risk, so thorough analysis should always be conducted.
Long-term trading in the crypto market can be a highly profitable strategy, but it also carries certain risks. For traders to be successful, they need to have a deep understanding of the cryptocurrency market, use reliable technical and fundamental analysis tools, manage their risks carefully, and act according to a strategy.
Successful examples of long-term trading illustrate that significant profits can be achieved with the right approach. However, it’s always important to remember that past successes do not guarantee future results.
Additionally, as the cryptocurrency market grows, more and more trading tools and platforms, such as Cryptorobotics, are becoming available. These tools can facilitate the trading process by providing additional features and simplifying market analysis.
In conclusion, long-term trading in the crypto market requires careful planning, preparation, and continuous learning. If you are willing to invest time and resources in developing your skills and knowledge, long-term trading can become an effective strategy for participating in the world of cryptocurrencies.