Crypto trading – Misconception No. 2: you have to short to take advantage of declines

Find weekly technical analyzes of the price of Bitcoin (BTC) and other emblematic cryptocurrencies such as Ethereum (ETH). But also videos to introduce you to certain technical indicators, tips or more fundamental approaches. All this with the objective of remaining clear and accessible to allow you to learn the basics of trading, while discovering cutting-edge analyses.

Full video of this Coin Trading analysis at the end of the article.

This technical analysis will be an opportunity to deal with the subject of false beliefs in the field of cryptocurrency trading. And the second video in this series discusses the idea that it is necessary to short the market to take advantage of declines. This amounts to betting on this trend to try to make a profit from its fall. But not everything is so simple when it comes to the crypto market.

Shorting in the cryptocurrency market

And the first problem vis-à-vis this willingness to bet on a decline and that the cryptocurrency market, as a whole, increases in value. And especially the most important of them, which are often those available for this type of operation. It therefore seems more relevant to position yourself on shitcoins. But they are few in number, and the costs involved are so high that it is not possible to keep one’s position for very long.

Especially since bearish trends in cryptocurrencies never last very long. A volatility that must be taken into account before deciding to maintain its positions. Because the latter can also come up against a market with a neutral trend over a more or less long period. This means paying daily fees while the prices hardly move.

Don’t Ignore Pareto’s Law

If we take the graph of Bitcoin since the beginning of this year, the observation is quick. There are far fewer truly bearish periods than there are upward moves. And these are most of the time very quick and sudden before turning around immediately. With at the center of it all a neutral trend that dominates this market most of the time.

A simple exercise is to remove from this equation the main candles made on the upside as well as on the downside. And we see in this case that the price hardly moves. Because only a few days in the year allow BTC to record its returns. All this according to the Pareto principle which explains that 20% of the days represent 80% of the performance.

Experience is the best ally

This requires taking into account that short requires benefiting from a certain experience. Because most of the time, downtrends last quite a short time in the field of cryptocurrencies. And these positions can rarely be held for more than a few hours or days. Which means knowing how to enter at the right time. But also to be able to cut positions without waiting too long.

Shorting cryptocurrencies

Because most of the time they are beginners who think it is necessary to short to outperform cryptocurrencies. A false belief that is the root of many bad decisions. While it may be enough – for example – to buy back a drop at the right time to obtain identical results. And records better performance than Bitcoin without having to be exposed to this type of operation which remains risky.

Fees that hamper performance

This while bearing in mind that no one ever buys at the bottom and then sells at the top. And that the goal remains to take advantage of the overall performance of the cryptocurrency market. With the objective of coming out of this adventure with profits and not losses. And without focusing on a success rate which remains the first of the false beliefs to be discarded.

Crypto trading – Misconception No. 1: the success rate

And it is not necessary to use tricks such as shorts or leverage to successfully outperform Bitcoin. Because the real secret of successful trading is to define a coherent and maximally optimized strategy upstream. This while avoiding imposing on its performance curve the costs that these options inevitably involve, without any guaranteed positive result. Because in this case the profits possibly recorded will simply be used to pay this invoice. Costs which can represent up to 20% of annual performancein the case of regular use of this type of tool.

An optimized trading strategy

To support this analysis, Hakim du Trading du Coin presents a strategy that he coded himself. The latter applied to the course of Bitcoin between January 1, 2015 and today, i.e. approximately 7 years of history. All based on 36 trades in total and a success rate that shows a result of over 66%.. Because the will is not to position oneself on multiple occasions, but to remain on profitable operations open over several weeks, even several months.

Because it is not necessary to live H24 in front of your computer screen to be a profitable trader. Proof, the profit factor of this strategy that shows a result greater than 22. Which is simply huge for this kind of position. Especially if we consider that over this period the BTC recorded declines which sometimes represented up to 80% of its value. This allows it to greatly outperform a more passive investment position of the buy & hold type.

Because the real risk is to see its positions (short or leverage) being liquidated. Which is never pleasant, even for an experienced trader. But this may represent the immediate end of the beginning of the crypto adventure for some beginners too eager to accumulate the profits.. Because you must already be able to earn money by buying and reselling before embarking on this type of very risky operation. And becoming a profitable trader is never just about increasing your risk exposure in the hope of making bigger profits.

A logic that is the basis of the trading strategy developed by Coin Trading. This is thanks to its 100% automated algorithmic trading tool which allows it to greatly outperform the Bitcoin and cryptocurrency market. All without the need to resort to this type of tool, which is as expensive as it is risky. A good way to enter this adventure while benefiting from the experience of professional and experienced traders to optimize its profits.

Trading cryptocurrencies carries a high level of risk, and may not be suitable for everyone. It is recommended that you fully inform yourself of the associated risks, and only invest amounts that you can afford to lose.

The content offered on the site is solely for educational and informative purposes. They do not in any way constitute recommendations and cannot be considered as an invitation to trade financial instruments.

The site does not guarantee the results or the performance of the financial instruments presented. Consequently, we decline any responsibility in the use which can be made of this information and the consequences which can result from it.

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