The Two Directions of Trading

Unlike traditional spot trading where you can only profit when prices rise, perpetual futures let you profit in both directions. This is one of the most powerful features of derivatives trading—and understanding it is essential for any trader.

Simple Rule: Go Long when you expect price to go UP. Go Short when you expect price to go DOWN. That's it—the rest is just details.

Long Positions Explained

A long position is a bet that the price will increase. When you "go long" or "buy," you're essentially agreeing to purchase the asset at the current price, hoping to sell it later at a higher price.

Long Position Example

You believe SOL will rise from its current price of $150 to $180. You open a long position with $100 collateral at 5x leverage.

Position Size: $100 × 5 = $500 Entry Price: $150 Exit Price: $180 (SOL goes up 20%) Profit = $500 × 20% = $100 profit Return on Collateral = 100% gain

Your $100 collateral becomes $200. The 5x leverage amplified the 20% price move into a 100% return.

When to Go Long

  • Bullish Market Conditions: Overall market trending upward
  • Positive News/Catalysts: Protocol upgrades, partnerships, adoption events
  • Support Level Bounces: Price holding at key technical support
  • Breakout Confirmation: Price breaking above resistance with volume
  • Oversold Conditions: RSI below 30, price extended below moving averages

Short Positions Explained

A short position is a bet that the price will decrease. When you "go short" or "sell," you're essentially borrowing the asset and selling it now, planning to buy it back later at a lower price.

Short Position Example

You believe BTC will fall from $95,000 to $85,000. You open a short position with $100 collateral at 5x leverage.

Position Size: $100 × 5 = $500 Entry Price: $95,000 Exit Price: $85,000 (BTC drops ~10.5%) Profit = $500 × 10.5% = $52.50 profit Return on Collateral = 52.5% gain

Even though the price went DOWN, you made money. That's the power of shorting.

When to Go Short

  • Bearish Market Conditions: Overall market trending downward
  • Negative News: Regulatory concerns, hacks, team issues
  • Resistance Rejections: Price failing to break above key levels
  • Breakdown Confirmation: Price breaking below support with volume
  • Overbought Conditions: RSI above 70, price extended above moving averages

Long vs Short: Side by Side

Aspect Long Position Short Position
Market View Bullish (price goes up) Bearish (price goes down)
Profit When Price increases Price decreases
Loss When Price decreases Price increases
Maximum Loss Collateral (price to $0) Collateral (price to ∞ theoretically)
Maximum Profit Unlimited (price can rise infinitely) Limited (price can only fall to $0)
Common Strategy Buy the dip, ride the trend Sell the rip, hedge holdings

Profit & Loss Calculations

Understanding how PnL works for each position type is crucial:

Long Position PnL

Formula: PnL = Position Size × (Exit Price - Entry Price) / Entry Price

Example: $500 position, entry at $100, exit at $110
PnL = $500 × ($110 - $100) / $100 = $500 × 10% = +$50

Short Position PnL

Formula: PnL = Position Size × (Entry Price - Exit Price) / Entry Price

Example: $500 position, entry at $100, exit at $90
PnL = $500 × ($100 - $90) / $100 = $500 × 10% = +$50

⚠️ Liquidation Works Both Ways

Both long and short positions can be liquidated. A long gets liquidated when price drops too far below entry. A short gets liquidated when price rises too far above entry. Always know your liquidation price before opening a position.

Real-World Scenarios

Scenario 1: Bull Market Rally

Bitcoin breaks above $100,000 for the first time. The market is euphoric, altcoins are pumping, and funding rates are highly positive.

  • Long traders: Profiting as prices climb, but paying high funding
  • Short traders: Getting squeezed, receiving funding but losing on positions

Optimal play: Longs with tight stops, or wait for pullback to enter.

Scenario 2: Bear Market Decline

Market dumps 30% on negative news. Fear and capitulation everywhere. Funding rates turn negative.

  • Long traders: Getting liquidated or stopping out at losses
  • Short traders: Profiting on the decline, paying funding but winning on position

Optimal play: Shorts with trailing stops, or wait for capitulation bottom to long.

Scenario 3: Range-Bound Chop

SOL trading between $140-$160 for weeks. No clear trend, lots of fake breakouts.

  • Long traders: Buying support at $140, taking profit at $155-160
  • Short traders: Shorting resistance at $160, covering at $145-140

Optimal play: Range trade both directions, or stay out until breakout confirms.

Common Mistakes by Position Type

Long Position Mistakes

  • Catching falling knives: Longing into a downtrend hoping for reversal
  • FOMO entries: Buying after a 50% pump because "it's going higher"
  • No stop loss: Watching a small loss become liquidation
  • Averaging down recklessly: Adding to losers without a plan

Short Position Mistakes

  • Shorting the bottom: Opening shorts after price already dropped 40%
  • Fighting the trend: Shorting in a strong bull market
  • Underestimating squeezes: Not respecting how violently shorts can unwind
  • Emotional shorting: Shorting because you "hate" a coin, not because of analysis

🎯 Key Takeaways

  • Long = bullish bet (profit when price goes up)
  • Short = bearish bet (profit when price goes down)
  • Both positions can be liquidated if price moves against you
  • Match your position direction to market conditions
  • Use stop losses regardless of position type
  • Leverage amplifies both profits AND losses equally

Analyze What Top Traders Do

Want to see how successful traders balance long and short positions? PerpsTracker lets you analyze the trading patterns of top performers:

  • See if they're currently long or short biased
  • Check their win rate on longs vs shorts
  • Observe how they adjust positions in different market conditions
  • Learn from their entry and exit timing

🔍 Study the Best

Our leaderboard shows real-time positions and historical performance of top traders. See which direction they're trading and how they manage risk across both longs and shorts.

View Top Traders →

Next Steps

Now that you understand long and short positions, continue your learning: