How to Short-Sell the Price of Bitcoin on Nadex

Before we look at short-selling Bitcoin on Nadex, here’s a quick reminder about what it means to sell something short: The basic rule of profit is buy low, sell high. When you short-sell, you’re still going to buy low and sell high, but you switch the order. You sell high first. You lock in a higher price to sell, then wait for the price to drop, so you can buy it once the price is lower. In some markets, short-selling can be complicated and involve margin. On Nadex, short-selling is as easy as buying and there’s no margin. And what are Nadex Spreads? The keywords to remember are “floor” and “ceiling” Spreads define a price range between a higher price (the ceiling) and a lower price (the floor). Between the floor and ceiling you can buy and sell the price of an underlying market like the euro, stock futures, gold, or Bitcoin, just like you would on any stock, futures, or forex platform.

As the price of the underlying market moves up, the price of the spread moves up. The market goes down, the spread price goes down. You try to buy low during up trends. And short sell high, closer to the ceiling, when the market goes down. What’s the difference on Nadex? The range gives you risk/reward limits and protection. If the market goes above the ceiling, you reach your maximum possible profit and stay there. If the market drops below the floor, you stop losing money. No matter how far the market drops, your loss is limited to the difference between your entry price and the floor price. This design gives you a built-in profit target and risk protection. Okay, let’s short Bitcoin the Nadex way. Let’s say you see a downtrend in a market, in this case Bitcoin.

It has done a 50% pullback upwards from the last major move and you think it will resume the downtrend. For this example, let’s say you placed a simple market order to sell 1 contract. In other words, you are selling the market short, in the hope of profiting if the price goes down from your entry level. In this case, the market moved back up, above resistance. By the way, if you use Fibonacci in your technical analysis, you’ll notice that it retraced up to the important 61.8% level. You could get out with a small loss. But in our example, let’s say you are confident in the overall trend. So instead, you add to your short position. You sell a second contract as the price comes down off the 61.8% level.

The weekly Bitcoin contract still has 4 days to go before expiration. On Tuesday, it begins to be profitable after an overnight drop, but just barely. For Bitcoin buyers, this would be a continuation of a larger losing trend. Bitcoin dropped overnight, then gained only some of it back. Wednesday sees another, larger overnight drop of over 1000 points. For most Bitcoin investors, this would be a bad day, but your short position of two contracts is profiting about $1100.

This might have been a good place to take profits and start the weekend early. But what if you didn’t? Starting at 10am on Wednesday, Bitcoin shot up nearly 1000 points in a couple of hours. Well, that’s Bitcoin. It can be volatile. Your short position is still up $200, though. It’s hitting a resistance line. Again, this is a point where you could exit the trade. There’s no one right choice, but on Nadex you have the flexibility to exit a trade, including a short-sell, as easily as you entered. In fact, you could have done multiple trades in both directions over these three days. Let’s see how the rest of the week turned out. Remember, past performance is not indicative of future results. Bitcoin dropped to a new weekly low just before midnight. That might have been another opportunity to take profits and even go long. But let’s say you’re not a night owl and you were fast asleep.

Bitcoin traced back up to that descending resistance line before resuming its downtrend. See that support trend line you drew a few days ago, based on the overall pattern of the past few weeks? Let’s say you trust your technical analysis and you decide that Bitcoin is likely to drop back to support. But if it goes up, you’ll get out at the resistance line above. Now you have a clear plan. As it turns out, Bitcoin went sideways and made you wait all through lunch, before plummeting Thursday afternoon. And where did it stop ? Right at your support line. Seeing it linger there, let’s say for this example that you decided to follow your plan, take profits, and take Friday off.

Again, trading on Nadex involves risk and as you saw in this example, losses are possible. However, Nadex offers you opportunities to trade on the way up and on the way down. And if you already own Bitcoin, now you have a way to hedge your investment. Nadex lets you trade the price of Bitcoin in the direction and the way that you want..

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Links related:

5 Ways to Short Bitcoin | Investopedia

For those investors feeling skeptical about Bitcoin, shorting the cryptocurrency is a possibility.

Bitcoin is a bubble, no plans to short-sell: Japan Post Bank CIO | Reuters

The bank could consider buying the digital currency if it falls to $100, but has no plans to short-sell bitcoin because it is too volatile, he added.

Bitcoin: The Big Short Moment Approaches - Seeking Alpha

Bitcoin has made many skeptics, myself included, look silly this year. Price action alone doesn't make something more valuable in the long term. Signs of 2006-l