Why not try short selling easily? Let's talk from the perspective of a market maker

I will talk to you about this issue from the perspective of market makers and liquidity

1. Looking at the market rhythm from the perspective of a market maker

From April to September 2024, the main task of most market makers and project parties is to "absorb chips", that is, to let the chips in the market flow into their hands through various means. During this stage, counterfeit products and VC coins are particularly typical.

Currently, this absorption phase has been basically completed, and the main goal next is to "distribute chips". The core purpose of distribution is to guide users to buy these chips by pushing up prices and market heat, and transferring chips from market makers/project parties to the market.

This market logic means that in the early stages of chip distribution, prices usually rise, and rashly shorting will face huge reverse pressure.

2. Analyze the current market environment from a liquidity perspective

Liquidity is the core driver of market growth, and recent macro factors are improving liquidity expectations.

The market confidence brought by the election results: After Trump's election victory, the market's attitude towards cryptoassets has clearly turned positive. The asset attributes of BTC have been further upgraded, and the cryptocurrency-friendly narrative is expected to dominate the next four years.

The easing of compliance pains: This year's compliance pressure has gradually eased, and the market has a clearer regulatory outlook for the future, which provides policy space for the rebound of risk assets.

C. Expected improvement in the net liquidity of the Federal Reserve: Currently, the net liquidity of the Federal Reserve is at a low level, and the liquidity rebound in 2024 is almost a high probability event. This poses a potential positive for all equity assets such as US stocks and cryptocurrency markets.

Based on these factors, attempting to short a market in an upward trend is tantamount to going against the trend and carries great risks.

How to operate if you must short sell?

1. Clear trading plan to avoid blind operation

Before opening a short position, the following points must be clarified:

Position logic: Is the purpose of this short position hedging risk or trying to top out?

Set stop loss: Clearly define the stop loss point to avoid sudden losses caused by rapid market rebounds.

Take Profit Target: Be clear about your expected target level and do not be greedy.

2. Tend to hedging rather than clearance

In an upward cycle, short selling operations should be more inclined towards hedging spot risk rather than simply net short. For example:

Reference hedging tool: In the US stock market, SQQQ (an ETF that shorts NASDAQ by 3 times) is a good hedging tool, but it should be clear that this tool is only suitable for risk hedging, not for long-term holding.

Using put options: buying put options to hedging the downside risk of spot. The advantage of options is clear cost (premium) and controllable maximum loss.

3. Allocate funds reasonably and control risks

At all times, it is necessary to ensure that the proportion of funds occupied by short selling operations is low, so as to avoid the tightness of the capital chain caused by reverse market fluctuations. Especially in the highly volatile environment of the cryptocurrency market, risk control is the top priority.

Summary

Against the backdrop of clear market trends and improved liquidity expectations, the risk of short selling is extremely high. If you must short sell, please clarify your trading logic, plan carefully, and prioritize hedging tools to reduce risk.