How To Short Dogecoin: A Beginner's Guide
Want to take Elon Musk's favorite token for a ride?
Dogecoin, the cryptocurrency that started as a meme, has gained immense popularity recently.
While some investors believe in the long-term potential of dogecoin, others see it as a speculative investment bound to crash.
If you belong to the latter group, you might be interested in learning how to short dogecoin.
This article will explain what shorting means, how to short dogecoin, and the risks involved.
Shorting is a trading strategy that allows investors to profit from a decline in an asset's value. In simpler terms, you borrow a certain amount of the asset and sell it at the current price.
Then, if the asset's price goes down, you buy it back at the lower price and return it to the lender, keeping the difference in price as profit.
Shorting is essentially the opposite of buying long, which involves purchasing an asset with the expectation that its value will increase.
Shorting or short-selling DogeCoin is placing yourself in a position to benefit from the drop in price of DogeCoin.
It means placing a bet on DogeCoin, especially when you don't have enough money to purchase it outright.
You then use your trading account to short the coin and sell it for a profit later.
Reasons to Short Dogecoin
There could be several reasons why an investor might want to short Dogecoin. Some of the common reasons include the following:
The belief that the price of dogecoin is overvalued and bound to crash
Fear of a Bearish Market Trend
Hedging against an existing dogecoin position
Elon Musk keeps posting about it or manipulating Twitter to pump the token
Risks Involved in Shorting Dogecoin
Shorting is a risky trading strategy, and shorting dogecoin is no exception. The following are some of the risks involved:
Unlimited losses: Unlike buying long, where your losses are limited to the amount you've invested, shorting has unlimited downside potential. If the price of dogecoin continues to rise, you could potentially lose more than what you've invested.
Margin calls: When you short an asset, you're essentially borrowing it from a lender. If the price of the asset rises, the lender may ask you to deposit more funds as collateral to cover their potential losses.
Short squeezes: In some cases, shorting can create a self-fulfilling prophecy. If enough investors short an asset, and the price starts to rise, they may need to buy back their short positions to minimize their losses. This, in turn, can create a buying frenzy that drives the price up even further.
How To Short DogeCoin
Several Crypto-exchange platforms allow traders to short cryptocurrency, and in this article, we look to highlight how to short cryptocurrency on two major platforms- Binance and PrimeXbt.
Step 1: Open an account
Your first step in shorting DogeCoin on this platform is to create an account on Binance. The platform has a verification process put in place to complete this process.
Step 2: Buy Futures to short DogeCoin
To short DogeCoin, you will need to purchase the USDT Tether stable coin for your futures contract.
Type DOGE in the search bar icon, and you will find the DOGE/USDT Perpetual option, the exact option you wish to short.
Your USD account Is then converted to USDT, after which you transfer those funds into your USDT wallet. Upon doing this, you can return to the DOGE/USDT page and then click on the Sell/Short Button. Should you predict that Doge will go down, you must make use of the short Button.
Step 1: Like in Binance, the first step is creating an account on the PrimeXbt platform. You can have your account created in no time by answering a few basic questions and undergoing a few confirmation procedures.
Step 2: This step involves you opening up the Trading Platform. Click on your account dashboard's "Margin" tab to do so, as this will ensure you see all the various charts and technical indicators. There are several options for you to go through before finally landing at the DOGE/USD market you are looking to short. You can either click the "Trade" button in the market review window or "Sell" in the left-hand corner of the chart for DOGE/USD, and both will open up the "New order" box.
Step 3: The last step is to decide just how much DogeCoin you are willing to short. In this step, you also get to decide if you want to do it with a market order or a pending price. After you have made up your mind, the last step is to click on "Sell," after which you tap the "Send order" button that helps execute the trade.
Do you Need Leverage when Shorting DogeCoin?
Yes, but not too much. You have a 50x leverage opportunity on your principal, which means that should you have $150 to invest, you can invest on a margin of up to $7500.
It is advised that you don't use too much leverage as that can leave you with losses of up to thousands in U.S. dollars and can also leave you liquidated.
Regardless of your proficiency in trading, you will need to decide wisely on whether to use marginal funds. An isolated position is advised to ensure you don't lose too much money in the case of a loss on your trade.
An isolated position means you will only lose the money you paid for that futures contract and nothing else. This position must be implemented before shorting cryptocurrencies to avoid monument losses.
Shorting DogeCoin Tips
Volatility is the order of the crypto world, but still, some assets are really volatile; DogeCoin is one of them. In lieu of that, shorting DogeCoin makes more sense than buying it to hold long-term.
This is the way to go for a coin with an unlimited supply and one that you wish to short In a period such as the current period of crypto adoption. A few tips like these ones will guide you on just how to short DogeCoin.
Your position size is very important: Before making any trade, you need to take cognizance of your position size, especially when shorting a volatile coin such as DogeCoin. No trade is worth risking too much on; shorting DogeCoin calls for calculated risks.
Keep tabs on social media trends: An important factor with DogeCoin is Social media, so to be sure of when to short DogeCoin, you need to be updated on what's happening on Social media. So before taking up that trading position, ensure you are abreast of the latest trends on Twitter, Instagram, Reddit, and more.
Take profit: Profit is only realized when taken, so before rejoicing on that green you see on your trades, ensure you have taken it first. You need to understand that the market will sometimes bounce, so ensure you take profit on extended runs lower. There will always be another opportunity to re-enter and take up another position but for now, take that profit.
How to Analyze Dogecoin’s Price Movements
This coin has been driven mostly by hype, meaning that fundamental analysis alone won't provide you with the concise analysis you need.
DogeCoin has fed on hype so much so that even A random Tweet or sporadic mentions on Instagram can have the coin convulsing almost.
Knowing this, you realize that Simple trend lines or moving averages are the way to go alongside the complement of basic support and resistance.
Most times, when DogeCoin makes it to the top of the trend table, it is often because major Companies are willing to take it up as a means of payment.
In such events, you see the coin bring up short-term volatility or even increase its price for a short period. This is the time for you to strike while the iron is hot, as you can use these shorting opportunities once the hype has eased off significantly.
With DogeCoin, we have seen the wildest of swings right from the minute it came around, and while it has mostly been to the downside, we still expect more of such swings.
DogeCoin being highly sensitive to social media is a key point to note for whatever action you choose to take on it, especially shorting.
DogeCoin has majorly depended on social media for its upward push, with tweets from people like Elon Musk and Mark Cuban being influential to that cause.
Unlike other conventional settings, institutional money doesn't move this market, opening up a possibility of significant price drops. If the short side of it attracts you, you need to know also about the long side.
The volatility of the crypto market means you need to be precise when predicting any price drop, so whenever you decide to short DogeCoin, apply the tips in this article to see that your short selling Of DogeCoin is a successful venture and not just one you choose to go headlong into just because everyone else is doing it.