Short selling: profiting when asset prices fall.
It is one of the least utilized yet most powerful weapons in a trader’s arsenal. But instead, many traders avoid it. Why? Fear.
In this guide, we’ll explain why traders blow themselves up because they fear short selling, what you need to do to overcome these fears, and why it’s all important to add them to your strategy for long-term success.
Why Are Traders Afraid of Short Selling?
1️⃣ It Feels Unnatural
For centuries, investing has been focused on purchasing for a low price and then selling for a higher value. This has created the notion that assets generally become more valuable as time passes. Many investors, specifically long-term holders, are reluctant to take a position where they are betting against growth to a certain degree.
🧠 Solution: Change the way you think. Markets move in both directions, assuming there is no opportunity for short positions ignores half of the potential.
2️⃣ Fear of “Unlimited Losses”
One of the most cited fears about short selling is that losses can be unlimited. When buying (going long), the worst-case scenario is the price dropping to zero, meaning you lose your initial investment. But in a short position, a stock or crypto asset can theoretically rise indefinitely, leading to potentially massive losses.
📉 Example: If you short Bitcoin at $60,000 and it jumps to $120,000, your losses can double (or more) unless you have a stop-loss in place.
🛠️ Solution:
✔️ Set Stop-Losses: Limit risk by defining exit points in advance.
✔️ Use Proper Position Sizing: Never over-leverage short trades.
✔️ Trade High-Liquidity Assets: High-volume assets provide smoother price action, reducing extreme volatility risks.
3️⃣ Psychological Bias & Fear of Being Wrong
Many traders view red candles as losing candles that bring negativity and green candles as candles that bring profits. Generally, speculations seeking higher prices are considered to be “less risky” or “more logical.” This emotional bias makes traders hesitate to profit from market declines.
🔑 Solution: Train your mindset by tracking past market cycles. Look at historical crashes and see how profitable short positions could have been.
The Future of Trading: Master Both Long & Short Positions
The best traders don’t just bet on rising markets, they profit in all conditions.
By overcoming fear and strategically using short positions, you can maximize trading opportunities while reducing risk.
If you’re still unsure about shorting, start slow, trade small, and use Bitfunded’s accounts to gain experience. Over time, short selling will become just another tool in your trading playbook.