10/17/2022 | Cryptopolitan
How to Short Dogecoin (Get High ROI on DOGE)
Dogecoin surged by 12000% in 2021 – much higher than flagship cryptocurrencies Bitcoin and Ethereum. In 2022, the cryptocurrency has decreased by more than 50% of what it was before due to the current bearish trend in the crypto market. This meme cryptocurrency is also known to pump and dump. Would you like to know how to short Dogecoin to get a high ROI on DOGE?
Shorting the cryptocurrency is a good strategy for investors who believe that Dogecoin will crash at some point in the future. It also means that you can benefit when Dogecoin falls. The guide takes a detailed look at how to short Dogecoin.
What Does Shorting Dogecoin Mean?
Shorting or short selling is an investment strategy that involves you predicting a drop in the price of a digital asset.
Again, Shorting Dogecoin means that you are placing a bet on the price of Dogecoin falling. Shorting the falling prices of Dogecoin is a good strategy if you don’t have enough money to acquire the cryptocurrency and sell it for a profit.
Anyone short any cryptocurrency through their trading account. People who trade cryptocurrencies can short their assets.
Overall, shorting is a simple process. All that is required is to sell off your Dogecoin at a profit and repurchase when the prices drop.
What Is Margin trading?
Margin trading is riskier than buying cryptocurrencies, but investors can short or bet against them. Through this method, you can make more profit as the price of Dogecoin decreases.
Furthermore, when you trade with leverage, your capital is used to cover the margin based on the extent of your leverage. For instance, if you short Dogecoin with 10x leverage, you will make a hundred percent return if Dogecoin goes to a lower price or decreases by 10%. Subsequently, if Dogecoin appreciates 10%, the capital you put on the margin will be liquidated.
It is essential to know that ByBit, a cryptocurrency platform, allows investors to use the leverage from 1x to 100x. The higher leverage you use, the more risk is involved. If you leverage your position to 100x, a 1% move may either liquidate your short position or offer you a 100% profit.
How to Short Dogecoin on The PrimeXBT Platform
Just like you can short stocks in the stock market to profit off their downfall, you can short cryptocurrencies. The most convenient way to short Dogecoin is through the Contract for Difference market. This frees you from the unnecessary headaches of dealing with the futures market.
Step 1: Open an account
The first step to shorting Dogecoin on PrimeXBT is to open up your account at PrimeXBT. You can create an account with a few confirmations. Once you have opened your account, you need to deposit Bitcoin.
Step 2: Go to the Margin tab
Once you have completed the first step, you must click on the Margin tab in your account dashboard. Again, this will allow you to open different charts and technical indicators and allows you to monitor all of the available markets. You will need to look for DOGE/USD to short Dogecoin. You can click the Trade button in the market review window or Sell in the left-hand corner of the chart for DOGE/USD. Both will open up the “New order” box.
Step 3: Decide on the amount of Dogecoin and short
In the next step, you need to choose the amount of Dogecoin you want to short. You also need to decide if you want to do it with a market order or with some pending price. Once you have decided, you need to click on the Send Order button to execute the trade. So that is it. You have succeeded in shorting Dogecoin on PrimeXBT.
How to Short Dogecoin on Binance
Besides PrimXBT, other crypto-exchange platforms allow investors to short cryptocurrency. Such platforms include Binance, Kraken, and Bitfinex. Here we will use Binance as a reference.
Step 1: Create an account
If you don’t have an account on Binance, you need to create one. Get an account by going through the verification process.
Step 2: Purchase futures to short Dogecoin
If you predict that DOGE will likely go down, you must use the short button.
How Much Leverage Do You Need When Shorting Dogecoin?
Don’t use too much leverage when shorting Dogecoin. You can leverage your bet up to 50 times your principal. If you have $100 to invest, you have the option to invest on a margin of up to $5000. Using too much leverage involves the risk of you getting liquidated and losing your money.
Even though you are an experienced trader, you need to ask yourself whether it is right to use marginal funds or not.
Ensure you choose an isolated position rather than a cross position. If you short Dogecoin and the coin’s value goes up (which is against your favor), a cross position means you will lose all your money in your future wallet. An isolated position means you will only lose the money you paid for that futures contract. Use this position before shorting cryptocurrencies so that you don’t lose money.
Shorting Dogecoin vs Margin trading: The Difference
Now that you know what shorting and margin trading means, you might think both are the same. No, there are not.
It is essential to know that selling a digital asset you don’t own is shorting. On the other hand, margin trading is when you borrow money from your broker to buy a cryptocurrency. The main difference between both terms is that when you borrow money to have to pay interest on the money you borrowed. When you short a digital asset, there is a small charge to the broker for their services.
Tips For Shorting Dogecoin
Dogecoin is one of the most volatile cryptocurrencies in the crypto market. With that in mind, shorting makes more sense than buying and holding on a long-term. However, this is probably because crypto adoption has been slow generally, let alone a coin – like Dogecoin – with a limited supply. Here are a few tips you need to know when you short Dogecoin.
Tip 1: Position size is vital
Your position size is vital when trading volatile cryptocurrencies, such as Dogecoin. Make sure you don’t risk too much when shorting.
Tip 2: Keep tabs on social media
Another vital tip you need to know is keeping abreast of social media. Again, social media drives what happens to most cryptocurrencies, like the Dogecoin instance. Monitor breaking news and trends on Twitter, Reddit, etc.
Tip 3: Learn to take profits
Another vital tip is learning to take profit when shorting. Know that the market will occasionally bounce, so ensure to take profits at every opportunity.
How to Analyze Dogecoin’s Price Movements for Shorting
If you look at the past performance of Dogecoin, you will know that the cryptocurrency is volatile and has many highs and lows. You can analyze the coin’s price movements through technical and fundamental analysis. You can’t analyze Dogecoin with just the fundamental analysis alone because the cryptocurrency doesn’t have a lot of fundamental analysis, as what drives the coin is hype.
A random tweet from a famous influencer, Elon Musk, has seen the coin surge violently even though its ecosystem is minimal.
After that tweet by Elon Musk, Dogecoin rose and peaked at $0.07 before cooling off.
Due to this, you are better off using technical analysis to short Dogecoin because it gives you an idea of where fear and greed come from in the market. Moving Averages, technical oscillators, and essential support and resistance zone will help know its price movements.
When it comes to the latest trends, when substantial companies are willing to accept Dogecoin as a means of payment, it tends to bring up short-term volatility or elevate its price for a short period. Hence, you can use these shorting opportunities once the hype is calmed.
Pros of Shorting Dogecoin
Shorting Dogecoin has lots of advantages to it. One of them is it has been on a downward trend (at the time of writing this) for the past few months. Here are other advantages:
#1: More returns
Whenever there is a decline in the price of Dogecoin, you tend to profit from its falling price.
#2: It is a meme coin
The team behind Dogecoin has stated that the coin has no use case. Hype gives the coin its wild ups and downs. You can take advantage of when these positions.
#3: An inflationary coin
Another factor that can be an advantage to you when shorting is that Dogecoin is an inflationary coin with no real value. The coin has an unlimited amount of supply.
Cons of shorting Dogecoin
Even though you can make profits shorting Dogecoin, some risks are involved.
#1: DOGE is a meme coin
Ironically, this one is both a pro and a con for short sellers. With just a random social media hype around it, the price of Dogecoin can skyrocket suddenly.
#2: Shorting can be dangerous
Yes, you can always protect yourself when shorting Dogecoin, but you need to know that the potential losses could be unlimited – this is possible. Why? Because there aren’t any constraints to the amount of printed Dogecoin.
All investments involve risk in the crypto market, as cryptocurrency is volatile. Even the most experienced traders find it difficult to anticipate market values. Shorting cryptocurrencies like Dogecoin gives substantial profits, but the losses can be devastating.
Short sellers are wagering that the stock they are short selling will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and returns it to the lender. The difference between the sell price and the buy price is the short seller’s profit. Easy to say but hard to timing though. With the volatility of the crypto market, predicting the drop in prices requires precision.
Take note also that the fundamental problem with short selling is the potential for unlimited losses. Shorting is typically done using margin and these margin loans come with interest charges, which you have to pay for as long as the position is in place. So, this requires experience and not for crypto trading newbies.
With that in mind, you need to consider the various steps in this article on how to short Dogecoin. Also, take note that the tips in this guide to effectively short Dogecoin are not investment advice.