There are some who say going long and going short are equal and opposite. In fact some say if you have a hard time doing one or the other, flip the chart upside down.
I disagree. To me they are very different, so here’s a quick write up with my views. This isn’t THE difference between the two, it’s MY difference.
But before I start, you need to know my biggest weakness as a trader so you know my frame of reference.
By far my biggest weakness, the one characteristic that prevents me from making massive gains (instead of just very good gains) is my inability to hold during an extended uptrend.
Dozens of times I’ve bought stocks at 15, sold at 18 and then watched the stocks rally to 40 over the following 6 months. Why I can’t hold is something I don’t know, but I am the way I am, and I’m ok with it. I guess at heart I’m just a singles and doubles hitter, not a homerun hitter.
Here goes. In my eyes, here’s how going long and going short differ.
Going long is much more mechanical. Most often I have an exact entry level or an exact resistance level I’m keying on, and I take my entire position all at once.
Going short is more intuitive. I have a general area I want to enter, and I tend to build into a position knowing that my first or second entries are not going to be ideal and will most likely show me a loss in the near term.
Related to the above…
My longs tend to either work or not work right away because I’m playing a volume breakout of a certain level.
My shorts tend to show me a loss in the near term because I don’t have an exact entry; I’m just trying to get in at a decent, but not perfect level.
I’m more active on the long side. During an uptrend, I’m in and out with 5-20% gains and rolling profits to the next trade. I wish I could hold, but I can’t. So I keep pecking away with little wins.
I’m less active on the short side…mostly because there are many less good short set ups during a downtrend than long set ups during an uptrend and because it takes longer for shorts to play out.
Related to the above…
My holding time with longs is much shorter than with shorts. Longs may be held for a couple days or two weeks at most.
Shorts, assuming the market is trending down, tend to be held longer. There are many whipsaws and false moves up that I try to ignore in an attempt to let the chart fully play out.
My entries with longs are almost always breakouts. In fact my favorite trade is a continuation breakout within an uptrend. If a stock rallies from 30 to 40 and then consolidates for a month, I play the breakout and move into the mid to high 40’s.
My entries with shorts are typically on bounces, not breaks of support. This is because too many times I’ve shorted breaks of support and got burned a couple days later when the market or stock rebounded. Losses will cause you to change your ways. 🙂 So I prefer shorting a bounce to an area that provides a decent entry knowing I’m not going to time it perfectly. In fact it’s so rare that a “back kiss” works perfectly, I’d consider it random luck. I almost always show a loss on shorts in the near term, but that’s fine. I’m just looking for a decent entry within a bigger move.
This may start to get redundant…
My longs trades tend to work right away…I’m in and out and rarely show a loss.
My shorts tend to take time to work…I’m in…then I’ll add to a losing position as long as the overall chart still supports the downside…then I’ll hold as long as possible to let the chart/trend fully play out.
Many traders will say the market moves faster to the downside than upside. This hasn’t been my experience and it’s why I trade actively and quickly to the upside and slowly and less actively to the downside. When a stock breaks out at 20, it can move quickly to 22-23 (within a week), but if it breaks support at 20, it’ll drop to 19, bounce back up, drop again, bounce again etc etc. Shorts just seem to take more time. This has been my experience even though it differs with what many traders say.
Still being redundant…
Going long is not quite an exact science, but it’s close.
Going short is more art. It’s more “feel.”
In my eyes going long and going short are definitely not equal and opposite. I could never turn a bearish chart upside down and pretend it’s a long.
That’s it for now. If I think of more difference, I’ll post in the comments below.
If you have anything to add, please do.
7 thoughts on “The Difference Between Going Long and Going Short”
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I agree with the author that shorts and logs are not opposite. Market forces generally in favor of long (which represents the healthy economy/+ve mind market participants.. etc). on the other hand shorts tend represent spontaneous reaction to certain conditions or fear of loss etc. Many people/funds/institutions are go only in long side. So breakout trade of long is much better than breakout trade on short.
Over the long-haul shorting requires a down trend (which is difficult to see early in a reversal, and personal tolerance of corrections in the down trend. “Tolerance” is an emotional value that most traders have to nurture. Most traders will tell you markets are biased to the upside over the long run. We do not trust shorts because we do not believe they represent the “long run trend” in markets. That is very human since we dislike the idea of a market that goes to zero, rather than just down for a time.
I like to use LEAPS when going short for a rational reason. That means a fundamental reason that I consider highly probable to occur (seasonality is a favorite). And I have a fair record with LEAPS just because I have to leave them in place to see the result, to learn the outcome. Sometimes learning is costly, but I still believe it is rational behavior.
I too agree that long and short require a different strategy and in a way I approach your thoughts, as the long side is more mechanical. Even in an uptrend I don’t care at all about the fundamentals.
However for a short I put the emphasis on the fundamentals, without ignoring the TA cause I need them for timing (and therefore I often turn the chart upside down (with the $ONE function in Stockcharts).
An upward market moves more slowly than it does on the downside. You perceive it differently because of your trading style. I think your trading style influences you in such a way that you see it different and not because it is different.
thanks for sharing your thoughts
I am a long term holder and usually stay too long with a stock or mutual fund. I would like to be able to hold a short position on the market at the same time, like an insurance policy. Make sense? I find by holding long, most of my positions work out fine, not without alot of volatility. I’m not sure how to also have a short position, like SDS or QID.
Jason, you’re unbalanced! Have you considered hypno-therapy? LOL Seriously :), read your article and highlight your entries in red and exits in green, you’re not balanced, you need to spend more time on your exit strategy(s). Is this exhaustion, a test of or correction to the trend? At this point its math, as you said the LONG entry is fairly mechanical. Try selling a CALL, calculate your cost basis and target return; e.g. buy at 45 and is now trading at 50 showing signs of overbought. Sell the 55 strike for 5. Your return if assigned at 55 would be 33% not 11% if sold at 50. Your cost basis would be 40 not 45 allowing a larger stop, 10% vs 5%. Personally I focus on timing the selling of the CALL, it’s significantly increased my bottom line.