Long and Short positions
First of all, it is necessary to specify the type of strategy that is going to be used for trading. There are two main types of strategies called long position and short position.
Implementing a long position strategy is equivalent to entering the market hoping for a subsequent rise in value. This type involves a possible maximum loss that is limited. In fact, the price can, in the worst case scenario, reach 0 and then the amount invested will be completely lost.
Implementing a short position strategy is the same as aiming to make a profit from the decline in the market value of a given cryptocurrency.
Usually, a stock of tokens is borrowed at the current price and at the expiration date of the loan it is simply necessary to pay the price that the asset has reached.
For example, if you bet on the fact that a given cryptocurrency will decrease in value but it will actually increase in value, the trader will be forced to pay the difference between the value reached and the entry value.
This strategy, unlike the previous one, could involve a theoretically infinite loss in the case of a continuous upward trend of the market.
Order types in trading
Basic order type consisting of buying or selling a token instantly and at the current market price. It offers the advantage of being immediately operational and having the certainty of making the purchase. On the other hand, in very volatile markets such as the cryptocurrency market, traders could be faced with purchases or sales that are not at the initially expected price.
This is one of the most used and simplest orders as it consists in establishing a precise purchase or sale price. Usually, a price higher than the entry price is set in order to be able to sell for a profit later or to set a price lower than the current market value in order to be able to buy with a margin of advantage.
On the other hand, there is the possibility that these types of orders will never be triggered if the market does not move in the desired direction.
It works similarly to the Limit order but differs in the fact that buy or sell thresholds are set. If these thresholds are exceeded, only then will the sale or purchase take place through a market order.
This is a dynamic stop order. It allows setting a percentage or a value of deviation from the maximum (or minimum) price that the asset will reach allowing to continue earning from a bullish trend or to enter with even more favourable positions in case of a continuing negative trend.
Stop loss Order
The most common application of a Stop Order. Traders impose a limit on themselves, beyond which they no longer accept to suffer losses from a market with a negative trend and exit by selling at the initially set threshold price.
It is one of the most advanced orders in trading that is not present on all exchanges, but it can be found, for example, on Bitfinex.
This type of order automatically confirms or deletes orders when certain criteria occur.
It is divided into OCO (Order Cancels Order) and OSO (Order Sends Order). For example, it is possible to set both a purchase order and a sale order at different prices. When the first of the two events occurs, only one of them is executed and the other one is cancelled.
By contrast, there is no control over which of the two orders may occur first and there may even be a risk that both conditions will never be met if the market remains stable.