Traders Guide – How to Short Crypto for Maximum Profit

How to Short Crypto for Maximum Profit

There are multiple strategies to earn money from crypto, One of them is shorting crypto. Shorting crypto involves the sale of crypto and then purchasing it back at a lower price. In this how to short crypto guide I will lay out the basics of short trading crypto.

The general idea is that you borrow a certain amount of crypto, sell it, and buy it back lower in value to pay off your loan. In simple terms, think of it this way: You are borrowing money on your crypto as collateral; you are selling the crypto to gain more money than what you borrowed, and then re-bought into USD or another cryptocurrency to repay your loan. 

Many Expert Crypto investors use shorting crypto as a strategy to earn more money on the volatility of crypto. The problem with this strategy is that you are losing out on your gains if the price goes up.

How To Short Crypto?

If you want to start shorting cryptocurrency then first you must purchase bitcoin, or take out a loan in USD. From there, use an exchange such as Coinbase or Binance to sell the crypto you have purchased (let’s say BTC) for USDT or another cryptocurrency.

Once your sell order is filled (Sold), then transfer your USDT back into BTC and from there transfer it back into USD to pay off your loan (let’s say through Coinbase again). The Broker / Crypto Exchange will charge you for a fee to do this, which is why it is advised that you consider all aspects before entering the short trade.

The key to this entire process is timing. You want to sell it at the moment the price will be High (Bull rally) and buy it back at the lowest price possible when the price will be low. It takes a lot of knowledge, Expertise, Accuracy, and analysis to do this properly, but once mastered you can earn huge profits by shorting crypto. 

The best way to learn how to short crypto is through Practice trades, or under expert supervision. If you are a complete beginner with little to zero experience, we recommend you start small with $100- $200 worth of Bitcoin or Ethereum.

Factors to consider Shorting crypto

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Margin Trading

Margin Trading is a technique that is a very reliable method if done with expertise. A margin trade is when you borrow some crypto and sell them, usually at a higher price than what you bought them for. If the price goes down, you can buy back the Bitcoin at a lower price and return it to the lender. The difference in the selling and buying prices is profit. If the price goes up, you will have to pay that higher price, whatever it is, to re-buy the Bitcoin and return it to the lender.

Predictions Market

Prediction markets work like a sports betting platform. Prediction markets offer users to predict the outcomes of certain events or the occurrence of certain events such as the likelihood of whether crypto will move in a bull market or bear market.

If you can predict the market accurately, then you will be able to buy Bitcoin at a lower price and sell them at a higher price.

Shorting Altcoin

When you short altcoins (altcoins are cryptocurrencies that are not BTC or ETH) you are borrowing some amount of that altcoins from an exchange and selling them. You will gain profit instead of the short seller if the price goes down.

Shorting ICOs [Initial Coin Offerings]

ICOs are when coins offer initial public offerings on exchanges. The coins are usually trades at a low price (usually $1-$5) during ICOs to people who want to own that certain coins. This is done before they are available on exchanges and eventually hit higher prices on exchanges.

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Options Trading.

Options trading is an advanced form of margin trading. It works by giving you the ability to buy or sell the crypto of your choice at a fixed price within a certain timeframe.

With that being said, there are no guarantees in this world of investing and trading. The cryptocurrency market is quite volatile, so one cannot afford to be picky with the chosen coin as long as it has the potential to grow many folds. So if you are looking for a way how to short crypto without having to pay a premium price for it then here are the 3 simple strategies that you can use:

Risk Management While Shorting The Crypto.

The first step to take when you are planning to short the crypto is to understand the risks involved. There are plenty of risks that you need to be aware of while shorting a coin.

Technical Analysis.

The primary aim of technical analysis is to predict the movement of a certain currency/share or market in a few hours, days, weeks, and even months.

Volume.

Here, volume refers to the number of trades being done for a particular coin at the given time frame. A large number of trades usually leads to market liquidity which in turn is reflected in its trading price. A larger amount also means a larger impact on price stability as a result of increased buying power.

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How Do You Short Crypto?

Market Conditions

If there is a panic situation in the crypto market or there is a piece of bad news about the project that you are about to short, then you should consider trade and wait for a shorting opportunity. Panic sales happen when bad news gets in the market and community about a specific coin. If the news is bad it will naturally lead to more selling from the holders of that coin which will in turn make the price go down.

Technical Analysis

Technical analysis is a type of analysis that uses historical data to predict future price movements. you can use technical analysis for finding a better shorting opportunity. For example, in the charts which usually show the prices of BTC and altcoin for 1 year and 5 years, you can see a pattern in both. For example, if you see a huge spike or drop in prices or a huge spike or drop on altcoin and BTC correlation then it will be an indicator that there is a big shorting opportunity.

Influencers

Trending personalities are influencers who have a lot of followers they can instill some sort of fear among the users that their opinions might be wrong. In this case, they will not be able to find traders intending to short cryptocurrency as many people will follow them including those who have no idea about technical analysis.

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Can You Short Crypto?

Shorting crypto is a risky business and it can lead to big losses if you are not careful. This is why you need to make sure that you have a good risk management strategy in place so that you don’t lose money. Crypto has seen some pretty violent price swings when it comes to shorting it, so you need to make sure that your stops are tight.

How Do I Short Crypto?

The best way is to use margin trading if you want to short the cryptocurrency market. Margin trading is when a trader borrows from a broker some amount of cryptocurrencies on an exchange to sell them at higher prices than what he bought them for.

Conclusion

Shorting crypto is a risky business, but if done with expertise can be very profitable. The above techniques are proven strategies that you can use to short crypto, but if you want to succeed in the crypto world, then you must be using the above techniques regularly.

If you have any suggestions or questions, ask us in the comment section.

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