How to Increase the Success of Trading When Shorting the Market
Traders often open short positions in the derivatives market as a hedge when the market is declining, or as a speculative tool in the hope that the market will crash. So, what can be done to increase the chances of success when shorting the crypto market?
#1 Wait for the Market to Be in a Euphoric Phase.
Before opening a short position, it's important to assess the current state of the market. Avoid shorting the market when it's in a fear or neutral phase. Open a short position when the market is in a euphoric phase and the Fear and Greed Index indicates an extreme greed condition.
#2 Pay Attention to the Macro Conditions.
Currently, the crypto market is heavily influenced by macroeconomic conditions, which are quite uncertain. Every time there is a bearish macro event, the market tends to decline. Observe potential bearish macro outlooks before shorting. Do not short the market when there are potentially bullish macro events on the horizon.
#3 Wait for a Retest Before Entering.
If you want to short, timing your entry is critical. Do not short the market just because the candle is moving downwards, as there is potential for a V-shape recovery back to the original level, which could result in losses. Always wait for a retest before shorting to achieve the best risk/reward ratio.
#4 Use Shorting Only as a Hedge.
Many traders short the market without having any exposure in the spot market, and when the market rises, they end up losing "twice." Ideally, a short position should serve as a hedge for your spot holdings. That way, if you profit from your short trade, you still hold your long-term spot positions, without worrying too much about their short-term value.