How to short Bitcoin?

Trading
September 26, 2019

Buying and selling are the essential components of the crypto trading process. In essence, buyers are hoping that the value of the underlying asset will increase over a specific period of time, while sellers think that the value of an asset is set to fall. As a result, both sides enter a trade in order to make a profit. In this blog post, we focus on the basics of selling, or shorting Bitcoin. Of course, the same lessons apply to shorting another cryptocurrency like Ethereum, or using a different base currency like HKD or AUD.

Sell at market

In general, there are three types of sell orders - market, limit and stop. Sell at market means that the sell order will be executed immediately at the current market price, whatever that price may be. Two other orders - limit and stop - practically translate into a message to the market that you don’t want the current Bitcoin prices. What you want instead is a price below or above the current market price. 

Let’s look at the Bitcoin price chart below. After performing the technical analysis, we come to a conclusion that we want to short Bitcoin immediately, as we anticipate further losses in this market. Sell at market would mean selling at the current market price of $8444,98 or as close to that as market can execute the trade.


BTC/USD daily chart (TradingView)
BTC/USD daily chart (TradingView)

Sell limit order

A sell limit order practically means you are looking to sell Bitcoin at a higher price, or better, than the current market price. Note that the limit order for selling is only available for prices higher than the current market price, as a limit order to sell below the current market price is ruled out due to the fact that better prices are available.

For example, you are again looking to sell Bitcoin, but not at the current market prices since you believe the market will move upwards, thus better prices will become available. As per the technical analysis in the chart, you are interested in selling the retest of the ascending trend line (the blue diagonal line), which currently sits around $9,600.

In a sell limit order, you specify the exact price in which you want to have your order filled by the market.

Sell stop order

Contrary to the sell limit order, the sell stop order is placed below the current market price. As Bitcoin trades around the $8,445 handle in our example, you are only interested in selling Bitcoin if it falls to $8,000. So, you believe that a fall to this price will accelerate losses and you will be able to buy back at a lower price and thus make a profit. 

For this reason, you enter a sell stop order at $8,000 which is triggered only if Bitcoin reaches this level. It’s important to note that both sell stop and sell limit are considered to be conditional orders, since the set price is not yet available in the market.

Where to short Bitcoin?

Once we define the available options, we then move to the second part of the trading process, which is the identification of tradeable levels. By performing the technical analysis and adding technical indicators to the chart, we identify levels where we think Bitcoin may start or accelerate its descent.


BTC/USD 4h chart (TradingView)
BTC/USD 4h chart (TradingView)

In the Bitcoin price chart above, we use a different example to show how to short Bitcoin. In this particular example, we have a price action trapped within a triangle. As the two lines converge, the breakout is imminent. As we believe the price will break to the downside, we use one of our options to enter a trade. Since committing to a trade while the price is still trapped within a triangle is never advised as there is a major unknown in which direction the price may go, we wait for a break before entering a trade.

In order to not miss out on a trade, we set a sell stop order (the purple line) at $6,000 below the current market price of $6,400. Hence, we are looking to make a profit off of the expected break to the downside, but only IF the price reaches $6,000. Any move back to the triangle means that our trade idea has been invalidated. Take profit order can be placed on the downside, but that depends on our trading style and risk sensitivity. 

We can also use a different approach by setting a sell limit at the triangle resistance. In this case, the stop loss order would be placed outside of the triangle, so we protect our accounts in case of a break to the upside.

Always keep sharpening your trading skills

Learn more basic and advanced trading techniques and tips in our DEX Masterclass series where we dive deeper into shorting stablecoins tied to national currencies, market making, arbitrage, indicators, moving averages, and setting up trading bots for automated trading strategies.

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