Using Ranges For Trading Shorter Time Frames

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3 Short-Term Cryptocurrency Investing Time Frames

Cryptocurrency Investing For Dummies

The following discussion spells out the three most common short-term trading time frames for cryptocurrencies. Short-term trading can also be called aggressive trading. Why? Because you’re taking more risk in the hope of making more profit. Investment of any kind requires a constant balancing and trade-off between risk and return.

To earn more return, you must take more risk. When aiming to make money in the short term, you must be prepared to lose your investment (and maybe even more!) in that time frame as well, especially in a volatile market like cryptocurrencies.

Short-term trading can be divided into different categories within itself based on how quickly you realize the profits — hours, days, or weeks. Generally speaking, the shorter the trading time frame, the higher the risk involved with that trade.

Cryptocurrency investing: profiting within hours

If you’ve ever wondered what a day trader does, this is it! Day trading is one form of aggressive short-term trading. You aim to buy and sell cryptos within a day and take profit before you go to bed. In traditional markets like the stock market, a trading day often ends at 4:30 p.m. local time. But the cryptocurrency market runs 24/7, so you can define your day-trading hours to fit your schedule. Pretty neat, right? With this great power comes great responsibility, though. You don’t want to lose your shirt and get your spouse angry at you.

Here are a few questions to ask yourself to determine whether day trading is indeed the right crypto route for you:

  • Do you have the time to dedicate to day trading? If you have a full-time job and can’t stick to your screen all day, day trading probably isn’t right for you. Make sure you don’t use your company time for trading! Not only you can get fired, but you also won’t be able to dedicate the required time and energy to trading either. Double the trouble.
  • Do you have sufficient risk tolerance for day trading? Attend this webinar to calculate your risk tolerance.
  • Even if you can financially afford to potentially lose money day trading, are you willing to do so? Do you have the stomach to see your portfolio go up and down on a daily basis? If not, perhaps day trading isn’t right for you.

If you’ve made up your mind that day trading is the right crypto route for you, the following sections share some tips to keep in mind before getting started.

Define crypto trading sessions

Because cryptocurrencies are traded internationally without borders, one way you can define a trading day is to go by the trading sessions in financial capitals of the world like New York, Tokyo, the eurozone (made up of the European countries whose official currency is the euro), and Australia. This method follows similar trading sessions as in the foreign exchange (forex) market.

Some sessions may provide better trading opportunities if the cryptocurrency you’re planning to trade has higher volume or volatility in that time frame. For example, a cryptocurrency based in China, such as NEO, may see more trading volume during the Asian session.

Know that day trading cryptos is different from day trading other assets

When day trading traditional financial assets such as stocks or forex, you can follow already established fundamental market-movers such as a company’s upcoming earnings report or a country’s interest rate decision. The cryptocurrency market, for the most part, doesn’t have a developed risk-event calendar. That’s why conducting fundamental analysis to develop a day-trading strategy is way harder for cryptos.

Set a time aside

Depending on your personal schedule, you may want to consider scheduling a specific time of the day to focus on your trades. The idea of being able to trade around the clock is pretty cool in theory. You can just get on your trading app during a sleepless night and start trading. But this flexibility can backfire when you start losing sleep over it. Remaining alert during day trading, or night trading for that matter, is very important because you need to develop strategies, identify trading opportunities, and manage your risk multiple times throughout the trading session. For many people, having a concrete discipline pays off.

Start small

Day trading involves a lot of risk. So until you get the hang of it, start with a small amount and gradually increase your capital as you gain experience. Some brokers even let you start trading with a minimum of $50.

If you start trading small, make sure you aren’t using margin or leverage to increase your trading power. Leverage is one of those incredibly risky tools that’s projected as an opportunity. It lets you manage a bigger account with a small initial investment by borrowing the rest from your broker. If you’re trying to test the waters by starting small, using leverage will defeat that purpose.

Don’t take too much risk

According to Investopedia, most successful day traders don’t stake much of their account — 2 percent of it, max — with each trade. If you have a $10,000 trading account and are willing to risk 1 percent of your capital on each trade, your maximum loss per trade is $100 (0.01 × $10,000). So, you must make sure you have that money set aside for potential losses, and that you aren’t taking more risk than you can afford.

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Secure your crypto wallet

One major problem with day trading cryptocurrencies is securing your crypto wallet. The least secure cryptocurrency wallets are online wallets. Because you’re going to need your capital handy throughout the trading day, you may have no choice but to leave your assets on your exchange’s online wallet, which can expose you to risk of hacking.

One way to enhance your security here is to not actually buy and sell cryptocurrencies but rather to speculate the price action and crypto market movements by using brokers who facilitate such services.

Stay away from scalping

Scalping is the shortest-term trading strategy some individual traders choose. It basically means jumping in and out of trades frequently, sometimes in a matter of seconds. If you’re paying commission fees for every trade, not only are you exposing yourself to a ton of market risk when scalping, but you can also get burned out by the fees before you make any profit. Individual traders rarely make any profit scalping. Now, if you’re part of an enterprise that has access to discount commission fees and huge trading accounts, the story may be different.

Cryptocurrency investing: profiting within days

If you want to trade short term but don’t want to stick to your computer all the time, this time frame may be the right one for you. In traditional trading, traders who hold their positions overnight are categorized as swing traders. The most common trading strategy for swing traders is range trading, where instead of riding up a trend, you look for a crypto whose price has been bouncing up and down within two prices. The idea is to buy at the bottom of the range and sell at the top, as you can see. If you’re using a broker who facilitates short-selling services, you can also go the other direction.

Of course, in real life the ranges aren’t as neat and pretty as what you see in the example. To identify a range, you must be proficient in technical analysis. A number of technical chart patterns and indicators can help you identify a range. For more on technical analysis, check out my award-winning trading courses.

If you choose swing trading rather than day trading, one downside is that you may not be able to get an optimized tax rate that’s created for day traders in some countries. In fact, swing trading is in the gray area for taxation because if you hold your positions for more than a year, you also get an optimized tax rate.

If you’re trading the cryptocurrency market movements without actually buying them, make sure you aren’t paying a ton of commission fees for holding your positions overnight. Consult with your broker before developing your swing-trading strategy, or check out Forest Park FX to select a broker that suites your strategy.

Cryptocurrency investing: profiting within weeks

This time frame falls into the category of position trading in traditional markets. Still shorter than a long-term investing strategy but longer than day trading, this type of short-term trading can be considered the least risky form of short-term trading. But it’s still risky.

For this type of trade, you can identify a market trend and ride it up or down until the price hits a resistance or a support. A resistance level is a psychological market barrier that prevents the price from going higher. A support level is the opposite: a price at which the market has difficulty “breaking below.”

To hold your positions for weeks, you need to keep your crypto assets in your exchange’s online wallet, which may expose you to additional security risk. You may be better off utilizing a broker that provides price-speculation services for this type of trading strategy so you don’t have to own the cryptocurrencies.

One popular position-trading strategy involves the following steps, as you can also see in the figure:

  • Identify a trend (using technical analysis).
  • Wait for a pullback.
  • Buy at the pullback within the uptrend.
  • Take profit (sell) at a resistance.

In my Premium Investing Group, I often provide position-trading strategies for members by using the Ichimoku Kinko Hyo + Fibonacci combo technique.

What Time Frame Is Best for Trading?

What time frame is best for trading?

Well, just like everything in life, it all depends on YOU.

Do you like to take things slowly, take your time on each trade?

Maybe you’re suited for trading longer time frames.

Or perhaps you like the excitement, quick, fast paced action?

In the table below, we’ve highlighted some of the basic time frames and the differences between each.

Time Frame Description Advantage Disadvantages
Long-term Long-term traders will usually refer to daily and weekly charts.

The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily.

Trades usually from a few weeks to many months, sometimes years.

Don’t have to watch the markets intraday.

Fewer transactions mean less times to pay the spread.

More time to think through each trade

Large swingsUsually 1 or 2 two goods a year so PATIENCE is required.

Bigger account needed to ride longer term swings

Frequent losing months

Short-term (Swing) Short-term traders use hourly time frames and hold trades for several hours to a week. More opportunities for trades.

Less chance of losing months.

Less reliance on one or two trades a year to make money

Transaction costs will be higher (more spreads to pay).

Overnight risk becomes a factor

Intraday Intraday traders use minute charts such as 1-minute or 15-minute.

Trades are held intraday and exited by market close.

Lots of trading opportunities.

Less chance of losing monthsNo overnight risk

Transaction costs will be much higher (more spreads to pay).

Mentally more difficult due to the need to change biases frequently.

Profits are limited by needing to exit at the end of the day.

You also have to consider the amount of capital you have to trade.

Larger time frames require bigger stops, thus a bigger account, so you can handle the market swings without facing a margin call.

The most important thing to remember is that whatever time frame you choose to trade, it should naturally fit your personality.

This is why we suggest demo trading on several time frames for a while to find your comfort zone.

This will help you determine the best fit for you to make the best trading decisions you can.

When you finally decide on your preferred time frame, that’s when the fun begins.

This is when you start looking at multiple time frames to help you analyze the market.

Different Types of 4 Majors Forex Trading Time Frames

Before you enter into a position, you need to know – beforehand – when you are going to exit the market. A trader is not going to hold onto a position indefinitely, that’s for sure.

Knowing the time frame of how long you wish to hold onto your open position will determine your exit points and prices.

If you choose to hold a position for, say, a week, your profit objective would naturally be higher than if you were to hold it for a few hours because you would expect the price to move further, given the longer period of time.

This is a personal decision which has to be made by the trader, depending on his or her risk tolerance level, lifestyle desired, and the amount of time to be dedicated toanalyzing the market.

There are mainly four different types of trading time frames:

  1. scalping
  2. day trading
  3. swing trading
  4. position trading

These are explained below.

This is the shortest time frame in trading; it exploits small changes in currency prices. It describes the ultra-rapid action of opening and closing of a position within a few seconds or minutes, with the aim of stealing a few pips from each trade.

Scalpers usually need to have access to the tightest spreads and fastest connection speeds possible, in order to carry out this bullet-speed trading with the tiny profits. They tend to do this many times a day so as to accumulate the little profits that are harvested.

Losses must be limited such that one large loss does not wipe out the profits gained from many winning trades.

Many forex market makers discourage this type of trading as they find it difficult to cover the opposite side of the transactions, given the fast speed and numerous orders entered into their systems.

Day trading is one of the more popular types of trading, whereby traders open and close positions within a day. They also do not hold their positions overnight because of the added risk of not knowing if prices would change dramatically while they sleep. The holding period of their trades may range from minutes to hours.

Day trading relies heavily on intraday momentum to bring the current price to the desired price level in one direction.

Day traders are looking out for signs that a currency pair has a high probability of moving in a particular direction, going from point X to point Y, within a day regardless of whether the price is moving in a trend or range.

Day traders tend to wait for good trading opportunities, instead of trading frantically like scalpers tend to do. This style of trading involves intense concentration from the trader as positions must be closely monitored on the price charts .

Swing traders hold their positions for a few days, but seldom more than a week. Identifying and riding on trends early is the central objective of this trading style, and the profit objective tends to be set higher than that of day trading since the swing trader is expecting that by holding out for a few days, there is a better chance of capturing a larger price move. Unlike the day trader, the swing trader has to endure overnight risk.

As swing trading requires much less minute-to-minute monitoring of the market, this type of trading is generally preferred by people who hold day jobs.

My opinion is that swing traders must still keep up-to-date with the latest fundamental and technical changes in the market, even when they are not monitoring the market all the time.

Position trading spans the longest period of time, and refers to traders holding their position for weeks or even months . Position traders seek to identify and trade currency pairs that signal that a medium to long term trend is playing out – but will take more than a few days to play out. Their positions are usually closed before the trend runs out of power.

This trading time frame is the least time-consuming one among all the different ones, as there is not much need for intensive monitoring. Many position traders place a trailing stop which automatically closes their position if the price retraces past a particular point.

As a general rule of thumb : the smaller the time frame you trade then the more time is needed to be devoted to monitoring the markets. Someone who day trades tends to be more in touch with the price swings and goings-on of the market as positions are opened and closed during the same day. Whereas at the end of the spectrum, a position trader does not have to monitor the market so intensively.

Risk-wise , I would say that the longer the time frame used in trading, the more risk has to be assumed by the trader. This is simply because the market has more time to move against them, and can move much further against them than it can in a smaller time frame.

Many of the strategies mentioned in this book are meant for short-term trading. However, you may decide on the length of your holding period to suit your personal preference by adjusting the profit target and stop-loss accordingly.

Of course, the size of profit objective and stop-loss will be proportional to the length of your holding period – the shorter your time frame, the smaller your profit target and stop-loss should be; the longer the trading time frame, the wider your profit target and stop-loss can be.

Trading Higher Time Frames Drastically Increases Trading Success

Forex traders are often tempted by the lure of lower time frame charts; they think they are somehow getting closer to the “real” action in the market and that they will find more trading opportunities on these fast moving charts. The reality of the situation is that the lower in time frame you go the less accurate any trade setup becomes, therefore, by trading lower time frame charts all you are doing is lowering the probability that any trade you take will be a winner by adding more variables to the equation of forex trading. Anyone who has been following my articles knows that I often talk about how dangerous it is to over-complicate your trading and that the keys to forex success are having the patience to wait for the best trade setup and thoroughly understanding forex risk to reward scenarios. Therefore, this article will discuss the advantages of trading the higher time frame charts and how they can help you become a patient and profitable trader

• Higher time frames act as filters of market noise

First off, by “higher time frames”, we are referring to the 4 hour time frame and above, any chart less than a 4 hour chart is considered a “lower time frame”, 1 hour charts can be useful to more experienced traders for refining their entry or exit, but they are still considered a lower time frame and should be avoided by beginning traders.

One of the biggest advantages of trading the higher time frame charts is that they act like filters of price movement. The forex market has such high daily trading volume, that the lower time frame charts contain what market technicians refer to as “noise”. The noise of the lower time frames is basically just price movement that is so erratic that it cannot be reliably used to make trading decisions; however, many traders get tempted by this erratic price movement because the human mind naturally tries to find patterns in nature and in the financial markets.

When you trade the higher time frames you get a clearer picture of what is really happening in the market because most of the erratic market noise of the lower time frames is eliminated. For example, if you see what looks like a large up move on a 30 minute chart, it might just be the beginning of a daily bearish pin bar, but if you were trading the 30 minute chart you might see this big move and then find a reason to jump on board only to have it come crashing down against you into the daily close. There are so many opportunities on the 4 hour and daily charts that concentrating your mental energy on lower time frames is simply an inefficient and ineffective use of time. Traders need to understand that the market will still be there tomorrow and the next day and for the rest of their lives, so missing out on a few good opportunities per week on the lower time frames is more than worth the sacrifice when you consider there will always be more accurate opportunities on the higher time frames.

• Trading higher time frames is part of the K.I.S.S. forex trading strategy

Simplicity is one of the keys to forex trading success, it is very important to keep your technical trading strategy simple in design and implementation, because over-complicating your trading is a sure-fire way to begin committing emotional trading mistakes. When traders begin trading on lower time frame charts they start over-complicating the trading process by trying to read the inherent noise that is a part of these fast moving charts, this inevitably causes them to over-trade which is one of the main causes of failure in the forex market. Remember, keep it simple stupid.

Higher time frame charts provide a much more useful and accurate depiction of price movement, this will enable you to be more confident in your trading decisions which will begin reinforcing a series of positive forex trading habits. Many traders struggle for years trying to trade lower time frame charts, eventually they either give up all together because they have lost too much money to bear, or they figure out that trading the higher time frames is a necessary component to consistent trading success. By understanding this fact now, hopefully before you have lost much money in the market, you can begin to focus your time and energy on the higher time frames and avoid the struggle and frustration that comes with trying to analyze the noise of lower time frame forex charts.

• Patience is key, higher time frames foster patience

It is no big surprise that traders who take a longer-term view of the market and trade higher time frames make more money, on average, than day traders. The reason why is because higher time frame traders naturally take far fewer trades than day traders or traders who mainly trade lower time frame charts. One of the most lucrative trading traits you can possess is patience; it is often overlooked by traders because so many of them erroneously believe that more is better in every aspect as it relates to forex trading. You will naturally take fewer trades when you stick to the higher time frames, assuming that you know what to look for and have the patience to wait for the trade setup you are looking for. Learn to think about this time in-between trades as a period of self-discipline and self-mastery, the very fact that you are not trading when there are no obvious signals means that you are not losing money, and not losing money is the same as making money when you consider the fact that you would be trying to make back what you lost, but since you didn’t lose any money you have nothing to try and make back.

By focusing on the higher time frames you also work to influence and develop the proper trading mindset. By trading less frequently you will naturally become a more objective trader because you will not be over-analyzing the market, trying to manifest trading signals on every time frame. Being an objective trader is different from being a fearful trader, objective traders know what they are looking for and when they see it they pounce on it like a tiger stalking its prey, fearful traders cannot act even when they see what they are looking for in the market. So, make sure you do not become a fearful trader, master your trading strategy first, this way you know what to look for, then wait patiently as the market plays out and the amateurs lose money on the lower time frames, when you spot your higher time frame trade setup you execute the trade with confidence and serenity.

• Price action signals are stronger on higher time frames

Finally, perhaps the most important reason you should stick to the higher time frames when trading the forex market is because they add weight to your trading strategy. As a price action trader, I know that a daily pin bar setup is much stronger than a 30 minute pin bar setup; therefore, because I have this knowledge I simply prefer to wait patiently for the perfect daily pin bar setup rather than frazzle my nerves and lose money trying to catch a rare high-quality 30 minute bar setup. Furthermore, I have better things to do with my time than sit around all day and night staring at a 30 minute chart, and I assume you do too.

Price action trading is especially impactful on the higher time frames because price action is naturally the clearest and purist reflection of aggregate market sentiment. When you combine the inherent clarity and effectiveness of price action trading with the power of trading higher time frames in forex, you have a very accurate forex trading strategy.

If You want to learn more about Trading Higher Time Frames and Learn More about How I Trade with Price Action, visit my forex course page here:> Forex Trading Course – Good trading as always – Nial Fuller

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