Trading is basically speculating on the future price movement. You have to conduct market analysis and predict whether the price will rise or fall. The analysis will influence your decision when to open a trading position. Interestingly, many people tend to enter the trades on price growth. And yet there are also great possibilities for earning profits on price decrease. Naturally, you have to be well prepared. And this is the purpose of today’s article.
Bears in action
There are bears and bulls in the market’s battle. We call the sellers “bears” and the buyers “bulls”. So opening a bearish position is to sell, or to go short, in other words. What it further means, is that you anticipate the price will go down shortly and you expect to profit from selling the asset.
It is possible to short sell on various assets and the main rules remain the same. You can trade stocks, currencies, indices, commodities, cryptocurrencies. With traditional brokerage companies for instance, if you are short selling stocks, you borrow them to sell and profit from the price fall. Next, you buy stocks to return what you have borrowed and your profit is the difference in the prices.
When you are trading CFDs (which are assets you can find under the tab for currency pairs on the Olymp Trade platform), you do not have to own the financial instrument you want to short sell. You make a contract for a difference in the prices choose the amount you wish to invest and wait for the results. The risk is limited to the capital you have invested in.
Sell or buy?
You need to decide whether you want to buy or sell. Your choice ought to be based on the performance of the assets and the way they are traded. A short transaction is opened when a decline in the value of assets is anticipated. The task of the trader is to determine the right point of entry and discover the best time to exit the trade to manage losses.
You can use technical or fundamental analysis or both together. You should use an appropriate money management strategy, like for example martingale system. Monitor the performance of the assets and place a stop loss level to manage possible losses.
Short selling at Olymp Trade
Opening a short position on the Olymp Trade platform is a simple process. Just follow a few steps.
- Decide what instrument you would like to trade. Choose it from the list of available assets in the top left corner of the trading interface.
- Choose the amount you would like to invest in a single transaction. This sum of money will be taken from your account and returned with a profit in case of a successful outcome. If your predictions were wrong and your trade lost, the money will not be returned or only in a part accordingly to the size of a loss.
There is also a magnificent opportunity to use a multiplier. This will multiple the invested amount. Thanks to this feature you can put on trade more than you actually have in hand. It might significantly increase your profit. Be careful though, because the multiplier will not only increase the profit but the loss as well.
- Set the Stop Loss and Take Profit levels to gain better control over your deal’s outcome. A transaction will be automatically closed when the price reaches the levels you have previously determined.
- Once you go through the above steps, click the red “Down” button and the sell position will be opened.
You may stay and watch the price fluctuations or you may relax and wait for automatic closing at the stop loss or take profit levels. You have always the possibility to exit the trade manually. Make sure, however, that you analyze the market thoroughly.
There is yet one more way to facilitate short selling at Olymp Trade. Just above the green and red buttons, you will find an “Order” field. This allows for opening a transaction automatically at the level you have determined beforehand. It is also called a pending order.
Pros and Cons of Trading in Bearish Markets 🔄
Trading in bearish markets, particularly short selling, comes with its own unique set of advantages and disadvantages. Let’s consider some key ones:
- Potential to profit in a falling market
- Can provide portfolio diversification
- May act as a hedge against long positions
- Increased risk, especially with short selling
- Requires substantial market knowledge and analysis
- May be challenging for beginner traders
Detailed Analysis of Trading in Bearish Markets 📉
|Market Analysis||Vital for predicting price movements. Should incorporate both technical and fundamental methods.|
|Risk Management||Key for controlling potential losses. Includes setting stop loss and take profit levels.|
|Trading Strategy||A well-formulated strategy is essential, especially in volatile bearish markets.|
|Investor Psychology||Understanding market sentiment is crucial in bearish trading. Fear can often drive price movements.|
It is good to know that you can profit on both, bullish and bearish markets. Short selling is taking advantage of the second one. Follow the few steps presented in this article and your sell position will be opened.
Do not forget to apply for a money management strategy. It will help you to have control over the capital in your account balance.
Get to know the market before you start trading. There is a free demo account at Olymp Trade where you can train without risking losing your own money. Use it as long as you need to and then switch to the real account. However, keep in mind that you may still face losses depending on how you trade. There is a lot of factors that go into making a winning trade, and there simply isn’t any guarantee for anything.
Are you a bearish market enthusiast? Leave the comment below. I would be happy to hear from you!
Q&A on Trading in Bearish Markets 🙋♂️
Here are some frequently asked questions about trading in bearish markets:
- Q: Can anyone trade in a bearish market?
- A: Yes, but it requires understanding of market dynamics, thorough analysis, and risk management strategies.
- Q: What assets can be short sold?
- A: Most financial assets like stocks, currencies, indices, commodities, and cryptocurrencies can be short sold.
- Q: How can I manage risk in bearish trading?
- A: Setting stop loss and take profit levels, diversifying your portfolio, and following a disciplined trading strategy can help manage risk.
- Q: Is short selling risky?
- A: Yes, short selling can be risky, particularly if the market price rises instead of falls. It’s essential to have a clear risk management strategy in place.
- Q: How can I improve my trading skills for bearish markets?
- A: Educate yourself about market analysis techniques, follow financial news, practice with a demo account, and learn from experienced traders.
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