Mastering Copy Trading Strategies: Long Bots, Short Bots, and Hedging Techniques Explained

Copy-trading can be incredibly beneficial for those looking to diversify their portfolio and allocate a part of it to active crypto trading. Choosing which trader or bot to invest in could still be a complex job, as every bot is different and a crypto copy trading portfolio still needs to be well diversified.

Therefore, the following parameters need to be taken into account: 

• Which side should the investment strategy have? LONG, SHORT, or both? 

• What cryptocurrency trading bot should I invest in? (e.g. GRID, Smart, and Dollar Cost Averaging DCA trading bots. Read here what is DCA bot and why it is Mizar’s favorite)

• Do I want to invest in the SPOT or the FUTURES market?

• Which kind of trading style do I want to copy? Long-term, short-term, scalping…more?

The main focus of this article is to provide an explanation of the concept of "side" in trading, explaining what LONG and SHORT are, to provide you with valuable information to take into consideration when choosing the right copy trading strategies for you. This will make it easier for you to browse the marketplace of the Mizar copy trading platform and invest in the right bots. So what bot should you choose to copy trade crypto?

What is a long bot? 

Long Bots follow the "Buy Low - Sell High" principle and operate by purchasing coins at lower prices and later selling them at higher prices to gain a profit. When using the long strategy, your profit is in the quote currency, which is the currency used to buy the coins, and the second currency of the trading pair on your cryptocurrency exchange. 

To set up a long bot on the BTC/USDT pair, you purchase BTC using USDT and any price increase in BTC leads to a profit in USDT. Keep in mind that the bot requires you to have USDT in your account to trade. 

What is a short bot? 

Shorting can be a complex concept, and there are several ways to engage in short trading. The easiest method is known as accumulation, which involves selling assets you already hold, such as BTC for USDT, at a particular price with the belief that the price will decline.

If the price does indeed decrease, you can purchase back the BTC using the USDT earned from the sale, resulting in a profit in BTC. This method is useful if you want to hold BTC and anticipate its value will continue to increase in the future. 

However, what if you do not want to accumulate the asset over time? How can I make profits by selling an asset, which I never had (and I don’t want to have!)?

This is where typical short selling comes into play, which utilizes contracts. Different types of short selling exist in the crypto space, and they depend on the services offered by the exchange provider. Short Selling on Futures contracts (Perpetual) is the most common way of short selling, and that’s supported by Mizar.

Shorting entails borrowing cryptos from an exchange and selling it on the open market, with the expectation that the price of the asset will decrease. Once the trader buys back the asset at a lower price, he or she will return it to the lender, making a profit from the price difference.

What is Hedging?

Hedging is a risk management technique that helps to offset losses by opening at the same time two opposite side positions on a related asset. It’s a smart way to get portfolio protection - which often is as important as portfolio appreciation (ie. making money).

The easiest way to think about Hedging is to see it as a form of insurance. You’re insured to prevent negative effects for price drops of certain positions (shorting), while you’re still having long positions in case the market turns bullish. Successful portfolio managers and traders are constantly hedging, and offsetting positions in cryptos with negative correlations.

However, reducing risks typically means that profits will be less. However, if the financial market goes against your assumptions, in case your hedge was successful, you will reduce your losses.

So should you copy trade a long or short strategy, or hedge?

Now that you know everything about strategy sides, the real question is: but where should I invest? As usual, the right answer is: it depends. Follow us in the new articles where we will explain the pros and cons of going long, short, or hedge.

FAQ:

What is a Dollar Cost Averaging, DCA crypto strategy?

In a DCA strategy, the initial investment sum gets divided into smaller amounts that are then invested in regular intervals instead of making one lump sum investment all at once. Especially when market volatility is high and unpredictable, spreading out investments over time might reduce the risk of investing everything at a suboptimal time.

How does copy trading work?

Cryptocurrency copy trading is a great way to access the knowledge and expertise of top traders, even if you don't have the time or knowledge to do your own analysis. It's also called mirror trading because you're copying or mirroring each move of a professional trader in real time. The best copy trading platforms offer this service at no fixed subscription fee - you only have to pay when you realize profits.

On what exchanges can I copy trade on Mizar?

You can copy trade on Binance, KuCoin, OKX, Coinbase, Bybit, Huobi, MEXC, Crypto.com, WOO X, and Bitget. Learn more here.

Does the social trading platform Mizar offer additional trading tools?

Aside from Copy Trading you can create your own DCA bots and use Paper Trading and Smart Trading on Mizar.