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The definition of trading position refers to the amount of a financial instrument, including securities, digital currencies and other financial assets, that a trader (individual or organization) owns and trades with. When a trader buys or sells an asset, he creates or closes a trading position through a buy or sell order. This position indicates the trader’s expectations for an increase or decrease in the price of the asset or the market in the future.
In practice, when a trader buys an asset, he creates a long trading position; in the hope of increasing asset prices. Conversely, when a trader sells an asset, he creates a short trading position; With the hope of falling asset prices. In either case, the trader expects to sell or buy at a different price than his or her bid after the passage of time.
Trading positions can be divided into three main categories, which we will examine below and then review their profit or loss mechanism:
Long Position: In this type of position, the trader buys an asset in the long term and keeps it for a long time. The trader profits from this trading position by hoping that the price of the asset will increase. This type of position is sometimes known as “buy”.
Short Position: In this type of position, the trader sells and owns an asset, with the hope that the price of the asset will fall. He profits from this trading position by waiting to buy it again when the price drops. This type of position is sometimes known as “selling”.
Neutral Position: In this type of position, the trader has both long and short positions at the same time. This strategy helps with risk adjustments and can reduce potential losses, especially for novice traders.
The profit and loss of each trading position depends on the trader’s predictions and his market analysis. But the most important factors that determine the profit or loss of a trading position include changes in asset prices, holding time, and transaction-related costs.
Profit on long position: If the price of the asset increases and the trader sells at a higher price than he bought, he will make a profit. This profit depends on the difference between the purchase and sale price, minus transaction fees and other costs related to the transaction.
Profit on a short position: If the price of the asset falls and the trader buys at a lower price than he sold, he will make a profit. As with a long position, this profit depends on the difference between the selling price and the buying price, minus transaction fees and other costs associated with the transaction.
Profit in neutral position: Profit in neutral position usually comes from changes in price of long and short trader assets. This profit can be obtained from the difference between the prices of two assets, minus the transaction costs and other expenses.
Trading position basically means spot trading. In them, a certain amount of the asset is bought or sold at the time of opening or closing the trading position. However, depending on the facilities provided by the exchange platform, you can also trade futures, forwards and other derivatives with a variety of long and short positions. Leveraging positions can also be very profitable for professional traders.
Opening a short trading position in the digital currency market seems more logical in times such as saturation of the upward trend and possible corrections, failure to break a resistance level or negative market sentiment. The reverse of these cases, i.e. when a possible rally is ahead, support levels have not been rejected and market sentiment is positive, it would be more appropriate to open long positions.
Among the most important patterns of the downward daily chart that show the right time for the short trading position are:
The following patterns are also usually considered as positive signals for a long trading position:
In a rising market, we mostly see the opening of long trading positions by traders; Because investors are looking for profit from the upward trend. In such a market, resistance levels are regularly tested and broken. But in a bear market, there are more short or sell positions. In this market, support levels are constantly being tested. Therefore, it makes more sense than ever to open these two positions in trending markets. In neutral or range markets, it is more common to open a short position.
Trading in the digital currency market is done in the form of various trading positions. This type of trade determines whether buying or selling and its time and amount. While in bull markets, traders mostly open long or buy positions, in bear markets, there are more sell or short positions. However, when adopting each of them, it is necessary to consider technical and fundamental indicators as well.
