Do you know what “long-short” means?
What if you heard that the meaning and origin of the term “long/short” has “certain important price movement characteristics” in FX?
In this article, we will explain the meanings and origins of the terms “long” and “short” and the characteristics of FX price movements. Knowing this, you may be able to take advantage of the collective psychology that appears on the charts.
Meaning of Long and Short
The meaning of the word itself is simple, so let me quickly introduce it.
The word “long” means “buy,” and “I entered the market long” means “I entered the market buying”.
“Short” is a word for “selling,” and similarly, “I entered short” means “I entered by selling”.
Thus, in Forex, “long = buy” and “short = sell”.
The etymology of the term “long-short” is explained at the end of this article. The word “short” literally means “short (short period of time).
And the word “short” contains an important characteristic of market price movements.
The word “short” indicates an important characteristic of price movement
What is the key characteristic of market price movements that the word “short” describes?
It is that price movements are more “short-lived” when they fall than when they rise.
In other words, price rallies take a long time, but price declines occur in a short time.
This means that a sell trade may reach its profit target in a shorter period of time than a buy trade, and depending on the market conditions, selling may be advantageous.
This is a common characteristic of all markets, including FX.
Reasons why rate declines occur in a short period of time
Why do rate declines occur over short periods of time?
There is a psychological background.
Humans try to avoid risk as much as possible, and this is a genetic instinct that we have inherited over millions of years.
Even today, as represented by sudden natural disasters, we never know when any danger will come, and when it does, we must run away from it as fast as we can.
When such a risk appears in front of us, we must run away from it as fast as we can. appears in front of us, this “instinct to avoid risk” causes us to act in a panicked manner.
This triggers a torrent of selling, which is manifested as a very fast (short-time) decline.
For more information on the risks of this instinctive behavior and how to resolve them, please refer to the following article.
Shouldn’t FX be the same for buying and selling?
But why is it that, aside from in the stock market where selling (short selling) is special, declines occur in a short period of time (short time) even in the FX market where buying and selling can be entered in the same way?
If we consider that this is also a psychological factor, it makes sense.
In other words, it is a visual factor in forex charts.
The forex charts that traders around the world look at are basically all the same. For the dollar-yen, if the value of the dollar rises, the chart shows an increase; if it falls, the chart shows a fall.
When people visually see a rising chart, they have the impression that the value is increasing or that it is safe to move up.
Conversely, if the chart is falling, people think, “Dangerous! Scary! Run! When the chart is falling, on the other hand, we have a strong impression that it is “dangerous,” “scary,” or “run for your life.
There is a slang word “garaaru (to crash),” which also means “to fall violently like Niagara Falls.
In fact, don’t you feel the same way when you see a chart like the one below?
Click on the chart below to enlarge.
Is it true that “declines move in short periods of time”?
However, since you may still be skeptical about whether it is true that “a price move in a short period of time (short time) is more likely to be followed by a decline,” let’s take a look at the charts of various currency pairs.
Since it is possible to intentionally extract only such a scene on a daily or hourly chart, let’s check it out on a “monthly” chart, which allows us to see price movements over the past decades in its entirety.
Since the monthly leg condenses “one month’s offense and defense” into a single candlestick, it can be said that the intent and actions of many market participants can be observed.
First, here is the monthly chart of the Eudo Dollar.
What do you think? Isn’t a long black candlestick more noticeable than a long white candlestick?
Also, don’t you get the impression that the angles of decline are tougher than the angles of rise, and that the price is collapsing all at once?
The following is a monthly chart of the dollar-yen.
Do you see a similar trend in this chart?
Let’s keep going and going. Next is the monthly chart of the pound dollar.
This is a monthly chart of the Australian dollar.
One last thing, here is the monthly chart of the pound sterling.
You can see that long black candlesticks tend to be more prominent than long white candlesticks, that the angle of decline is tighter than the angle of rise, and that the price is collapsing all at once.
This is exactly what we mean by “short”.
Let’s be aware of this during the actual trade
If you trade daily with this trend in mind, you will notice that even on a 5-minute chart, for example, panicky short-time declines are occurring on a daily basis.
This is also where the “fractal structure” of FX price movements shows its face.
Origin of the terms “long” and “short”
The term “long-short” is originally a term for margin trading, and is used for margin and futures trading of stocks.
Since FX is also a type of margin trading, the term “long-short” is also used.
What is margin trading?
Margin trading is a method of trading that uses a mechanism called leverage by temporarily borrowing money or stock certificates from a securities company, instead of using only one’s own funds.
Forex trading is also margin trading, in which you use the margin deposited in your forex account as the source of funds to make large trades by applying leverage.
Please refer to the following article for an explanation of leverage.
In the case of stocks, you are basically waiting for the stock you bought to increase in value over time. In other words, you expect the stock you buy to increase in value over the long term.
This is why the term “long” is said to have come to be used for “buying” stocks.
However, there are times when a stock falls for some reason, and shorting the stock is sometimes used to cover the loss.
In the forex market, it seems obvious because you can trade in the same way whether you are buying or selling, but in the stock market, selling is positioned as a special trade.
Anyway, borrowing money to short a stock through margin trading is different from buying and holding a stock. Since the funds for short selling are borrowed (advanced) from the brokerage firm and must be repaid on the due date, it is naturally a short-term transaction.
This is why the term “selling” is said to have come to be called “short (short-term).
The “Long and Short” – Summary
The word “long” means “buy” and “short” means “sell.
The word “short” is derived from the fact that falling rates move more quickly than rising rates, which is an important characteristic of FX price movements.
Why don’t you trade by paying close attention to falling (short) prices from now on?
In this article, we have explained what “long/short” means, what it means, and the characteristics of FX price movements that it represents.
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