As a trader, you’ve probably already encountered the terms “long position” and “short position” while talking about certain financial assets. In layman’s terms, long positions and short positions indicate the kind of order you enter on a certain financial asset.
These things are important to study because prices fluctuate frequently over time. Entering the market based on your analysis of the market’s movements, the indicators, and the patterns can give you a lot of edge on the financial markets, giving you more chances for increasing your account balance.
This article will discuss the long position, what you need to know about it, and most importantly, the 5 best long-position trading patterns that can help you predict the outcome of your Binomo trades.
Defining the long position
Trading jargons, although convenient to use in the long term, can easily get confusing for beginner traders to make sense of. To make things simpler, what you need to remember is that “long” typically means “buy”, and “short” means “sell”. However, there are a lot of variations and derivations of the term “long position” specifically, so read on to know more about the nuances.
Also called “long”, this term means market entry with the strong expectations that the value of a certain financial asset will rise. If you believe that the value will rise, you will then buy the asset so that you will profit from the rise in the value of the asset. Therefore, the long position is considered a bullish point of view and means that one will enter the market with a “buy” position.
For certain financial derivatives that are traded, they can enter a “long call” or a “long put”, depending on the outlook of the price.
A long call is done when a trader is hoping that the prices of a certain asset will rise eventually. There are financial derivatives that will grant the trader a choice of whether or not to buy the asset at a future date at a certain price. This right is called “call” in trading jargon. Entering a “long call” means “buying a call”, which, in even simpler terms, means “buying the right to buy the asset at a future time, at a specified price”.
A long put, on the other hand, is when a trader sells at a certain market position in the hopes of the market prices falling after a certain period of time. Again, these are talking about financial derivatives that give you a contract of selling the asset at a predetermined price after a specified period of time. Entering a “long put” means “buying the rights to sell the asset at a future time, at a specified price”.
The opposite of a long position is a “short position”, or a “short”, which typically means that the trader wants to sell a certain asset.
The 5 best long-position trading patterns
It’s important to be able to read the patterns of the prices present in the charts for the position you take to be as desirable as possible. If you can read the patterns, then you can position yourself in the most advantageous way possible.
The following chart patterns are the most popular signals of the approaching trends.
The Double Top and The Double Bottom
These patterns resemble the letter “W” and the letter “M”. The double bottom resembles the letter W and indicates two deep troughs towards and upwards trend. The double top meanwhile is like the letter M and is indicative of two top peaks in a downwards pointing pattern. The double top and bottom pattern is a part of the technical analysis technique to determine the movements of any financial asset over some time.
The patterns commonly evolve over a long duration. These patterns do not necessarily have to look like an exact M or W, and therefore will not always present ideal graphic patterns. Keep in mind as well that the troughs and peaks do not have to be of equal lengths for them to be considered the double top and double bottom patterns. This makes this pattern somewhat harder to spot than others.
The double top pattern typically signals a bearish reversal of the trends, meaning that the upward price movement can switch down. The double bottom, on the other hand, typically indicates a bullish reversal, meaning that the downtrend will most likely switch up.
However, these patterns are most effective when used alongside other patterns and indicators.
Here are two examples of the double top on the Binomo trading platform. As you can see, the pattern faintly looks like an M.
Meanwhile, here’s an example of the double bottom.
Head and Shoulders
The Head and Shoulders pattern usually appears as three peaks with a baseline called the “neckline.” Among the three peaks, the one in the middle, called the “head”, is usually the highest peak, while the two peaks on either side are shorter and are called “shoulders”. This pattern usually appears towards the end of an uptrend and signals a possible trend reversal, also known as the “bullish to bearish trend reversal.”
Additionally, this pattern is hailed as one of the best patterns that predict that a bullish trend is nearing its end.
It forms when the asset’s price rides an upwards trend before declining just a little bit before the next upwards thrust. The price then rises again to overtake the previous peak in height to form the “head” and then once again going down to the level of the first peak’s base. The third and last peak will rise equal to the first before plunging – breaking the baseline of the previous peaks and continuing to the downwards trend reversal.
Here’s how the head and shoulders pattern looks like on the Binomo platform.
The Inverse Head and Shoulders
Also called the “Head and Shoulders Bottom”, this pattern is the inverted version of the previous Head and Shoulders pattern and therefore is an indication of a bearish to bullish reversal – meaning that a downtrend is at its end when this appears, to flip towards a bullish, or upward, trend.
This pattern occurs when the price of a financial asset dip to a trough, rises back up to form a baseline, and then plunges back down to a second deeper trough only to rise back up to the baseline. To form the third and last trough, the third dips down to – or almost to the level of – the first trough, or shoulder. Once the last trough appears, the prices will most likely move upwards.
Here’s what this pattern looks like when you’re trading on the Binomo platform.
Cup And Handle
This pattern is considered a bullish signal, meaning that the prices of the asset will most likely trend upwards if this pattern appears. The main part of this pattern is in the shape of a “U” with a handle. The handle is where the breakout occurs and continues to an upwards trend. This is a long term trend, with the formation of the pattern lasting from several weeks to several months. This pattern is often analyzed to better identify buying opportunities.
The cup and the hand pattern happens when the price of an asset tests old highs, generating a pressure to sell from certain investors who bought at those previous levels. This pressure will often make the prices range with a small tendency to be bearish for weeks to months before the handle appears. This forms the “cup” part of the formation. Sharp bottoms indicate weak signals – the longer the curve the stronger the indicator of an uptrend.
There are some considerations when reading a Cup and Handle Patterns, such as the length of the curve, the depth of the curve, and the volume of the curve.
Above, you can see a sample of the cup and handle pattern on the Binomo platform. It’s not a perfect U, but can you see where the trend reverses and then comes back up again? This uptrend is again broken by a dip in the prices, leading to a short downtrend.
And that’s it for the most popular long-position trading patterns most popular patterns, you can now use them to position yourself for the long haul. Keep in mind that these patterns develop over a long period of time and may not be immediately visible. Using these patterns does not guarantee immediate returns, but you can be certain of the trends that they signify.
Now that we have discussed these patterns, you now have a good basis for your long positions. Do you have any experience in trading these patterns? Head on over to the comments and let us know!
Good luck on your trading journey with Binomo!