Taking a long or short position is simply making a trade, hoping to profit from the rise or fall of an asset. Therefore, beginner traders should comprehend the meaning of long/short positions before proceeding.
Simply put, to “Go Long” means making money from price increases, and to “Go Short” means making money from the asset’s price decline. However, this action is a simple part of trading that should come adequately.
In this article, we will explain long and short positions using the classic asset type of the Forex market: currency pairs. However, trading in the Forex Mode on the Olymp Trade platform, you will find more assets to benefit from, including stocks and crypto.
- Long Positions In Forex Trading
- Short Positions In Forex Trading
- Factors Affecting Long or Short Positions
- Trade Management Guide
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
Long Positions In Forex Trading
Opening a long position in forex trading is when a trader opens a position expecting the currency pair’s price to rise 📈
For example, in the EUR/GBP pair. The euro is the base currency, and the quote currency is GBP. Going long in EUR/GBP means traders anticipate that the Euro will appreciate against the GBP. Therefore, you can only earn from a long position if the price increases.
This image shows how the price moved higher from the circled zone, the perfect opportunity for a long trade.
How To Open A Long Position In Olymp Trade
The first step to “go long” is identifying which asset is likely to increase in value. Traders often use fundamental or technical analysis to anticipate the upcoming price action.
Now, open the trading platform and select your desired asset from the top left section. Then, analyze the chart and market to find when and where the price will likely increase.
Let’s look at an example from the Olymp Trade chart in Forex mode:
In this example of opening a long position in forex trading, the price of EUR/GBP reached a support level and formed a bullish candlestick pattern. If you believe the price will increase, click “Up” from the right section.
Here, the Up trade refers to a long position allowing you to make money from the entry point. Similarly, you will make a loss if the price drops below the entry point.
Short Positions In Forex Trading
A short position is when a trader opens a trade expecting to profit from the underlying asset’s price to decline 📉
In a short trade, the second or the quote currency should become stronger than the first, leading to bearish pressure in the market pushing prices down.
For example, the GBP is the quote/2nd currency in the EUR/GBP pair. If you think the GBP’s value will increase against the Euro, you have to “go short” to make money.
This image shows how the price reached a horizontal resistance level. If you think the USD’s value will increase against the Euro, you “go short” to make a profit by clicking the Down button.
How To Open A Short Position In Olymp Trade
As said above, In forex trading, “going short” means making money from a bearish movement. So, you can open the Olymp Trade platform and identify the short opportunity from available assets.
Once you click the currency pair’s badge in the top left corner, choose the asset that will receive bearish pressure based on your analysis.
Let’s see an example on the Olymp Trade chart:
In this example, the EUR/USD 1 hour-chart formed a bearish rejection candlestick pattern from the resistance level. This pattern is a signal that the price will likely decrease, leading to a short trading opportunity.
Click the “Down” button to go short. Once you click, the trade will be open automatically based on the amount you selected. You can see the floating profit and loss from the Trade section and close the position using the Take Profit, Stop Loss or manual execution.
Factors Affecting Long or Short Positions
Opening a short or long position requires a deep understanding of market analysis. If you are new in this industry, you must learn what factors affect long and short positions.
Technical analysis is a process of anticipating the future price of an asset based on its past behavior. You can master technical analysis by learning trading theories like support/resistance, price patterns, candlestick analysis, order flow, order block, supply-demand, Fibonacci’s, etc.
Fundamental analysis is a process of anticipating the future price based on the fundamental perspective.
There are many economic events and fundamental releases to affect the forex market that you should consider while making trading decisions.
Some of such events are:
- Central bank interest rates
- Unemployment reports
- Inflation reports
- Gross Domestic Product (GDP) reports
Keep an eye on these reports, other relevant news, and financial analysts’ thoughts on what could come about. To understand how it works, check the fundamental analysis section.
Trade Management Guide
Once you open a short or long forex trade, you will either make a profit or a loss. But the real question is how much profit you should make from your investment and what is your maximum risk tolerance level for this goal?
After opening a trade, set the Stop Loss and Take Profit and ensure that stop losses are not wider than taking profits. Risking $500 to gain a $100 profit is not a good idea, is it?
Besides, using a multiplier is a great way to boost the profit while keeping your trade amount same.
If you invest $100, and use X200 multiplier, the trading value will be increased to $20,000 ($100 X 200 = $20,000). You can always change the multiplier to X10, X100, etc. depending upon the asset.
Setting Stop Loss, Take Profit and multipliers are easy on the Olymp Trade platform. If we go long - the Stop Loss will bes below the trade, and if you go short, the SL will be above the entry level. Setting a Stop Loss will close the trade with a minimal loss preserving your balance.
In this image, you can see how the stop loss and to take profit option is expanded by clicking the trades button from the top right corner.
You can set the stop loss or take profit based on the dollar value, percentage, or price level. Once you set these, click “Apply” to save these changes in the price chart.
Summarizing the basics of going short and long in forex trading, we can say that long trades profit from an uptrend, and short trades profit from a downtrend.
Whether you want to open a short or a long position on currency pairs, make sure that you did enough research to anticipate the future price using technical or fundamental analysis.
There are enormous education resources in the Olymp Trade Blog from where you can select your desired short or long trading strategies and make your trading journey fruitful.Go Trade Forex
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
A pre-set order designed to help minimize risk by closing a trade before it becomes too costly.
Take Profit is a pre-set order that captures your profits on a trade at a specified level rather than waiting to lose money if prices fall again.