I think cryptocurrencies and blockchain tech is revolutionary technology that has the potential to liberate the world. That being said, crypto is notoriously volatile, and as a trader, it just makes financial sense to play the swings.
Some people “short”, in a sense, by just selling the coins they own at price they feel is at the range/cycle highs. They will then wait for the price to drop, and hope to buy back cheaper (accumulating more coins in the process).
That works if you already hold the coins that pumped, but what if you don’t?
What if you watch a coin rise 300% in a couple weeks, and your technical analysis is indicating that the uptrend is weakening and it’s due for a major pullback?
Wouldn’t it be nice to be able to profit off that retrace, even if you don’t hold the coin and missed the upmove?
Well, you can.. and in this article, I’m going to show you exactly how to do it.
How to short Bitcoin/cryptos: A step by step guide
The exchange that I’m currently using to short is called Bitget. If you don’t have an account, you can sign up here and get a deposit bonus if you meet their requirements.
While I’m going to use the Bitget interface throughout this tutorial, the steps are likely similar on other exchanges that offer futures and margin trading as well.
Step 1: The first tab I select is USDT-M Futures.
That will pull up a chart with a dropdown menu.
Step 2: Select the coin you want to short, and it will bring up a price chart. For this example, I’ll choose ETH.
Step 3: On the far right hand side, next to the order book, you’ll see options to open and close a trade, along with two buttons at the bottom “buy long” (in green) and “sell short” (in red). If I want to open a short at the current price with 10x leverage using 25% of my available balance, here’s what the settings would look like..
That’s an important tab, and a lot can go wrong, so I’m going to clarify a few things..
On the top left, you can see the word “isolated” along with a drop down menu. When you click that, you’ll have 2 options – isolated and cross.
Opening an isolated position means that you won’t be risking your entire balance on the trade (as long as you don’t select 100% on the slider below it).
For example, if you have $100 dollars available in your margin account, and you open an isolated short position using 25% of your balance, you will lose $25 dollars if the trade goes against you and you get liquidated.
If you opened a cross position, however, a liquidation can wipe out your entire balance even if you only initiated the trade with 25%.
This is because the system will leverage your entire balance to give you more breathing room to avoid liquidation.
For example, opening an “isolated” short on Ethereum with 10x leverage when the price is $1606 will set a liquidation price of $1707. Meaning, if the price hits $1707 while my short is open, I will lose the entire $25 (25%) that I risked.
If I selected the “cross” open when opening the short, however, my liquidation price would be much higher.. but my entire available balance would be at risk.
Of the two options, I prefer isolated positions. It’s reckless to risk your entire account on a single trade. I I want more breathing room so to speak, I can just reduce the leverage, which will increase the liquidation price.
Of course, you can (and should) use stop losses as well so you’ll be out of the trade before the price even gets anywhere near that liquidation trigger.
Step 4 – How to set stop losses and take profit orders: You have multiple opportunities to do this. You can do it before you place the trade, or you can do it after. To do it before, just tick the box (as shown above) that says “take profit/stop loss”. Once you do, you’ll be able to type in your price targets..
Alternatively, you can set your take profit/stop loss after the trade is placed. Doing it before is more advantageous if you’re setting a limit order as opposed to a market order.
A market order will trigger the trade immediately at the current price, whereas a limit order will allow you to set a specific price in which you want the order to be triggered.
Limit orders are great for when you want to set your trade and just walk away from the computer. If the price reaches the area that you specified, it’ll activate the order (along with your stop loss). Very convenient!
Anyway, once you’ve placed the order, it will appear under the “position” tab, which is located below the price chart. Here’s an example of an open BTC short..
As you can see, it shows you all the details. The liquidation price for this position is $24,283, meaning that if the price hits that amount, I will lose the total “margin” amount. In this example, it’s just a little over 12 dollars.
Since it’s a 15x leverage, that 12 dollars is playing like it’s a 183 dollar position. Clearly this is just for demonstration purposes, but if the margin amount was 500 dollars, then with 15x leverage, the position size would be increased to approximately 7500 dollars.
Anyway, on the top right hand side, there’s a “take profit/stop loss” tab.
If you click that, a popup will appear that looks like this..
It’s pretty intuitive. If you want to set a “take profit” target, tick the box and use the slider to select which price you want to set it at. Do the same for your stop loss if you want to set one.
You can also set take profit targets (and stop losses) in batches. Meaning, if you want to close 25% of your position at a certain target and let the remaining 75% ride.. you can do that.
I find this works well when paired with the fibonacci extension/retracement tool, which can give you multiple projection and retracement targets. If you have no idea what I’m talking about, this article will help: Fibonacci Tool Mastery (read).
Summary
Shorting is actually quite easy to do if you’re using an intuitive platform. I personally like using BitGet, but there are other platforms that offer the same type of functionality.
If you want to sign up for a BitGet account, using this link will get you some great bonuses.
One last thing worth mentioning, your long or short trades should be aligned with the trend. As they say, the trend is your friend.
If you’re going to trade against the longer term trend, base those trades on shorter timeframes, get in/get out and be quick to take your profits because you should assume the macro trend will continue unless proven otherwise.