Long vs Short Explained

Long vs Short Position Differences

Long vs short, which strategy is better? They both have their benefits. Going long is easier because every broker allows you to go bullish on a stock. Shorting is a great strategy in bear markets or during reversal setups. All you need to do is sell a position near resistance and buy low to cover. It’s a simple process, but you need a specialized broker like SpeedTrader, Centerpoint, Interactive Brokers, or LightSpeed to get you short locates.

There are two very different trading strategies known as long vs short. Long and short positions are two main strategies for trading in the stock market.

Long vs short positions are different, and you do not want to confuse them. Hence, knowing what each strategy means and how to trade them is necessary. 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.

Long means you have a position in a stock that you expect to increase in value. Short means the opposite. That you have a “short” position and expect the stock to go down in value (you profit in each direction.) Let’s break it down below:

  1. Bulls try to push the price up, and that’s when traders look to enter a long (buy)
  2. Bears try to push the price down, and that’s when they go short (sell short)
  3. Remember that the trend is your friend when going long or short. (don’t bet against it)
  4. Longing is typically considered easier than shorting
  5. Pick stocks that have already won! (already bullish, already bearish)

Long vs Short With Options

Long vs short positions are the two most basic trading choices. You can long and short stocks, options, and futures. Some people choose not to short a stock but buy put options instead. This is seen as a little bit safer than shorting a stock outright (shorting is riskier than longing because when you short a stock, you have unlimited risk). Since the battle of the bulls and bears chooses the stock market’s direction, 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. Knowing what type of order you place is important 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 keep losses small. 

Long vs Short Example

Long vs Short Example

This is a chart example of long vs short on the $SPY. The long example shows the base of a cup and handle or double bottom formation. As the price broke above the double top, there was a chance to enter long. The short entry example showed a double top failure at the moving average resistance lines. This was also part of an inverted cup and handle pattern. 

Day Trading Terms

When a trader goes long, they hope the price will increase. 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 means that you believe a price will increase and you’re in an active (positive) position.

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 differences between long vs short.

You’re getting insight into how a trader feels about a stock. That doesn’t mean you should go out and copy them, however. Do your due diligence. You may see a different play on the stock. Hence, understand patterns and other forms of technical analysis to make your decision.

So that you know, all brokers allow long trading. You don’t need a margin too long as you have the funds to cover your trades.

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What Does a Short Position Mean?

Shorting is the bearish side of trading in long vs short. Short selling is selling shares you don’t own to buy back when the price falls. In other words, you borrow shares from your broker, believing the price will fall. You cover your position to close it out and return the shares to the broker.

Your profit is the difference between the price of where you sold and where you covered. Shorting is a risky business. In essence, you could lose an infinite amount of money shorting.

If a stock trades 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 lose everything and then some. You’re on the hook.

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 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 consider another option, Interactive Brokers.

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 the price will increase, you purchase a call.

Put options take the short (by short, we mean bearish) side of things. You can buy or sell options when you believe the price will fall.

Many, if not all, brokers allow options trading. So you can still technically be short by trading put options. However, options have more moving parts than trading shares.

Hence, you need to study and practice trading options. However, it would be best to do that with long vs short trading as well.

Long and Short Patterns

You don’t have to guess whether or not you should go long vs short. Seeing patterns is so important, especially when trading penny stocks.

Candlesticks by themselves tell a story. However, when grouped, 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.

Final Thoughts: Long Vs Short

Long vs short plays make the money depending on what the setup being presented offers. 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.

Frequently Asked Questions

Investors enter a short position on a security when they are bearish on the stock. They enter a long position when they are bullish on the stock.

It's better to be short a stock when it's overextended, or the trend is starting to reverse to the bearish side. Being long is better when the trend is bullish or the security is oversold. 

Traders enter a long position when the price confirms support levels or a key resistance level breaks out. They enter a short position when resistance levels reject or the price breaks a major support level.

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