Watch our video on long vs short differences when trading if you want to know when you should go long OR short when trading stocks options or futures!
What Is the Difference Between Long vs Short?
- Here are the differences between long vs short:
- Bulls try to push price up and that's when traders look to go long (buy)
- Bears try to push price down and that's when they go short (sell short)
- Remember that the trend is your friend when going long or short. (don't bet against it)
- Bullish and bearish reversal patterns are important short term warnings!
- Pick stocks that have already won! (already bullish, already bearish)
There are two very different trading strategies known as long vs short. Long and short positions are the two strategies used to trade the stock market.
The stock market is a tug of war between buyers and sellers which creates stock patterns. What strategies are the bulls and bears using to fight?
Long vs short positions are different. Hence the need to know what each strategy means as well as how to trade them. Every trader should be aware of how to use the different strategies.
That doesn’t mean you have to or even should trade both strategies. You may be more comfortable with one over the other.
1. Long vs Short With Options
Long vs short positions are the two trading options. Even with options trading you have calls and puts; which are the long vs short option. Since the battle of the bulls and bears chooses the direction of the stock market, you want to know how to capitalize on those moves.
Long vs short refers to the type of trade being placed. In other words, it’s based on whether you open a trade by buying or selling.
There are specific order types such as market or limit orders. It’s important to know what type of order you’re placing when going long or short.
You can place a stop loss when you place the order to protect your position. Stop losses protect profits as well as keeping losses small. Read our post on how to place a stop loss order.
2. Day Trading Terms Long and Short
When a trader goes long, they’re hoping that price will move up. Day trading terms use “buy” and “going long” interchangeably.
As a new trader, you may hear going long and think of long term trading or investing. However, longing just means that you believe a price will go up.
As a result, if you hear someone say they are long on a stock, it doesn’t mean they’re holding it for years. They could be holding for seconds or minutes. Hence the difference between long vs short.
You’re getting insight into a how trader feels about a stock. That doesn’t mean you should go out and copy them however. Do your own due diligence. You may see a different play on the stock. Hence what patterns are for.
All brokers allow long trading. You don’t need margin to long as long as you have the funds to cover your trades (receive our stock picks free for 14 days).
What Does a Short Position Mean?
- Shorting is the bearish side of trading in long vs short. Short selling is selling shares that you don’t own to buying back when price falls. In other words, you borrow shares from your broker with the belief that price is going to fall. You cover your position to close it out and give the shares back to the broker.
Your profit is the difference between price in where you sold and where you covered. Shorting is risky business. In essence, you could lose an infinite amount of money shorting (check out a list of no pdt rule brokers).
If a stock trades all the way down to $0 and you’re long, you lose the initial investment. It can’t go negative so you don’t lose more than that.
However, if you go short and the stock continues to move up instead of down, you can end up losing everything and then some.
Now that doesn’t happen because of risk management and stop losses. Keep your losses small. If a trade goes against you, get out of it instead of holding on hoping to recover any losses; especially when shorting.
Not every broker allows short selling. If shorting is something you’re interested in make sure your broker has the option. If not, you may need to look into another option such as Interactive Brokers.
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1. The Options Side
Options trading is different than trading shares. Options are made up of contracts. Each contract controls 100 shares.
Options trading has the long vs short game however. Call options take the long side of things. If you believe price is going to go up, then you purchase a call (bookmark our stock lists page which is updated daily).
Put options take the short side of things. When you believe price is going to fall, you can buy or sell put options.
Many, if not all, brokers allow options trading. So you can still technically short by trading put options. However options do have more moving parts than trading shares.
Hence you need to study and practice trading options. Although, you should be doing that with the long vs short trading as well (check out our day trading strategies page).
2. Using Patterns to Determine Long and Short Plays
You don’t have to guess whether or not you should go long vs short. Being able to see patterns is so important, especially when trading penny stocks.
Candlesticks by themselves tell a story. However, when grouped together they form patterns. These patterns not only provide support and resistance but also direction.
There are bullish and bearish reversal patterns as well as continuation patterns. If you’re trading without patterns, you’re setting yourself up for disaster.
Traders pay close attention to support and resistance as well as patterns.
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Bottom Line on Long vs Short
Long vs short plays make the money depending on what the setup is. However, trades will go against you. It’s important to remember to cut your losses quickly and take your profits. Getting greedy over profits is the best way to give them back.