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Author Topic: this is wrong:Why is a higher volume of BTC Short positions a bullish indicator?  (Read 78 times)
youbitbrain
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September 04, 2018, 05:10:47 PM
 #1

EDIT: general feedback is that this is incorrect.  A greater number of shorts is a BEARish indicator.  That makes sense to me.  Thanks

Intuitively (for me anyway), a higher number of short positions means there are a larger number of people who feel the price is going to tank.  The only reason I can think of to explain why this is a bullish indicator is because for every short position taken, there's someone on the other side of the trade taking a long position(?)  But if that's the case, maybe a higher volume of short positions shouldn't really be a bullish or bearish signal, but instead just a signal of price instability(?)  Huh Tongue

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-YBB
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September 04, 2018, 07:19:26 PM
 #2

Intuitively (for me anyway), a higher number of short positions means there are a larger number of people who feel the price is going to tank.  The only reason I can think of to explain why this is a bullish indicator is because for every short position taken, there's someone on the other side of the trade taking a long position(?)  But if that's the case, maybe a higher volume of short positions shouldn't really be a bullish or bearish signal, but instead just a signal of price instability(?)  Huh Tongue

Thanks
-YBB

Where do you see that number? And what makes you think that what you see actually reveals what you think? If we are talking about currency or stock markets, the other side of the trade is an exchange itself, that's why your logic won't work with them ("for every short position taken, there's someone on the other side of the trade taking a long position").

If you actually mean crypto exchanges like Bitfinex where you can sell borrowed coins, this is what it is. The number of borrowed and then sold coins shows the market sentiment (provided you can actually know this number), and there is no other side in the sense you mean it. Someone has obviously lent these coins but that doesn't in the least mean that he expects the price to rise. So your reasoning fails here too. If anything, it is not a bullish indicator.
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September 05, 2018, 07:37:11 AM
 #3

Intuitively (for me anyway), a higher number of short positions means there are a larger number of people who feel the price is going to tank.  The only reason I can think of to explain why this is a bullish indicator is because for every short position taken, there's someone on the other side of the trade taking a long position(?)  But if that's the case, maybe a higher volume of short positions shouldn't really be a bullish or bearish signal, but instead just a signal of price instability(?)  Huh Tongue

Thanks
-YBB


Where have you seen that correlation?

If there are a lot of short sellers, then it most likely means that prices go down in the short term. The reason these people take out these short positions is that they feel like BTC would go down drastically meaning that they can buy them back later at more favorable price. Even though this might not be completely bearish circumstances, I don't see how this could be bullish, unless a short squeeze occurs.

Anyhow, I think what you mean by shorting in this sense is that prices are going down due to shorters, while the people taking the long positions are doing so when the markets are falling. If that makes sense.

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September 05, 2018, 08:02:56 AM
 #4

I don't see any correlations in that. Personally, whenever there is a huge volume of short positions in the market, everyone is expecting some form of downtrend in the price in the nearest time possible. No form of bullish indicator can be seen whenever the market is flooded with short positions, though there had been some cases wherein shorts have been overwhelmed by an instant buying mania in the market, best example is bitcoin during Feb and May wherein we topped over $8000 while shorts are being rolled out by traders. Anyhow, shorts are still an indicator of a short-term bearish sentiment in the market, at least for me.

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September 05, 2018, 08:45:48 AM
 #5

Anyhow, I think what you mean by shorting in this sense is that prices are going down due to shorters, while the people taking the long positions are doing so when the markets are falling. If that makes sense.

You seem to not fully grasp what OP wants to say. He basically says that if the number of those who open short positions increases, so must the number of those who are taking long positions as there are always two sides to the trade - the buying side and the selling side. When one trader sells to another, it is always the case. But things become more complicated with margin trading when a trader doesn't sell his own coins as he first borrows them and sells them on margin.

So if people expect prices to fall, they may borrow more money to ride the wave down. In this case, the amount of borrowed money is expected to match or matches the number of open short positions. But as I said in my previous post here, this is hardly a bullish indicator.
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September 05, 2018, 09:26:39 AM
 #6

I similarly have never understood this logic. All trades have an equal and opposite force and so there shouldn't be any real indication from it. For each person thinking btc will fall there should be another believing it will rise. At least when we are an equilibrium. Even still I definitely do not understand how it would be a bullish indicator, I would think the opposite as you said. If for example 10 people opened up a short position at a price but only 1 of them got matched that would be a higher volume of shorts but would show that people are unwilling to match the short because they similarly believe the price will fall.

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September 05, 2018, 09:44:24 AM
 #7

Intuitively (for me anyway), a higher number of short positions means there are a larger number of people who feel the price is going to tank.  The only reason I can think of to explain why this is a bullish indicator is because for every short position taken, there's someone on the other side of the trade taking a long position(?)  But if that's the case, maybe a higher volume of short positions shouldn't really be a bullish or bearish signal, but instead just a signal of price instability(?)  Huh Tongue

Thanks
-YBB


If I go by your theory, then I will have to believe that, if we see higher number of long positions taken, there are similar numbers of short position takers on the other side of the trade! Is that correct? So what you are saying that each position is self balancing! Am I understanding it correctly?

It is not the case in day trading market and it doesn't signal bulling or bearing trend. This particular trend of positions is valid for futures market only! Futures contract comes with an expiry date. If the contract holder wants to square off his position before that expiry date, he will have to find a buyer from the market. It is not necessary to have an opponent party for a futures contract with an expiry date. So if you see more numbers of short position taken in the futures market, it signals a bearing trend and vice versa. Hope this explains your question!


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tee-rex
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September 05, 2018, 11:36:51 AM
 #8

I similarly have never understood this logic. All trades have an equal and opposite force and so there shouldn't be any real indication from it. For each person thinking btc will fall there should be another believing it will rise.

It remains so as long as you buy and sell your own bitcoins and the other party also uses their own money for the trade, fiat to buy your bitcoins and bitcoins to buy your dollars. But things turn upside down when margin trading is involved. In brief, margin trading basically means you sell and buy with borrowed money, but the party which borrows you that money (bitcoins or fiat) doesn't care where the market is going. All they care for is interest you pay them. So if people start borrowing bitcoins in order to sell them for fiat (dollars), it is a bearish sign for bitcoin. On the other hand, if they start borrowing fiat (dollars) to buy bitcoins, it is a bullish sign for bitcoin.
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September 05, 2018, 12:29:18 PM
 #9

Intuitively (for me anyway), a higher number of short positions means there are a larger number of people who feel the price is going to tank.  The only reason I can think of to explain why this is a bullish indicator is because for every short position taken, there's someone on the other side of the trade taking a long position(?)  But if that's the case, maybe a higher volume of short positions shouldn't really be a bullish or bearish signal, but instead just a signal of price instability(?)  Huh Tongue

Thanks
-YBB


When we speak about the crypto cuxrencie then there is endless possibilities on what you can predict about the crypto singling and also the bull and bear trends. Just pick any trade period of the bitcoin since the January this year and see how many times bitcoin has gone wild up and then have reached its bottom consequently making things worst for the market. So the question is whether we should be calling it as short term positions that were opened up and closed immediately over the time ? Or was it just bull snapshot? This is what might be happening at this time and hence we can not really predict whats going on. It could be a proper bull run or just another trap itself.


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September 11, 2018, 11:48:49 PM
 #10

I agree with the other users here.

Shorting means that people see the market as overheated, or is a co-ordinated effort on trying to keep markets down.

Shorting to me generally suggests that even though markets may be currently bullish, they are most likely going to be negatively affected if there is a huge amount of shorts within the market.

If unexpectedly, markets see a huge reversal of prices and see prices rise, it could cause a short squeeze if the conditions are extremely bullish. That doesn't happen all the time, though, and there would still be some bearishness before the squeeze comes. Would be interesting to see your sources on this theory.

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