3 Common Short-Term Time Frames for Investing Cryptocurrency

3 Common Short-Term Time Frames for Investing Cryptocurrency

Though it may be frightening, it is a time-tested truth in investing: You must take more risk to earn a higher return. When attempting to make money in the short term, you must also be prepared to lose your investment (and possibly more!) in that time frame, particularly in a volatile market such as cryptocurrencies.
Aggressive trading is another term for short-term trading. Why? Because you’re taking more chances in the hope of making more money. Any type of investment necessitates a constant balancing and trade-off between risk and return.

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Short-term trading can be divided into several categories based on how quickly profits are realized — hours, days, or weeks. In general, the shorter the trading time frame, the greater the risk associated with that trade.

Cryptocurrency Investing: Profiting Within Hours

This is what a day trader does if you’ve ever wondered what they do! One type of aggressive short-term trading is day trading. You want to buy and sell cryptos in a single day and profit before going to bed. A trading day in traditional markets, such as the stock market, typically ends at 4:30 p.m. local time. However, because the cryptocurrency market is open 24 hours a day, you can tailor your day-trading hours to fit your schedule. Isn’t that cool? However, with great power comes great responsibility. You don’t want to lose your shirt and enrage your spouse or partner.

Here are a few questions to consider when deciding whether day trading is the right crypto route for you:

  • Do you have enough time to devote to day trading? If you have a full-time job and can’t sit in front of a computer all day, day trading is probably not for you. Make certain that you are not trading on company time! Not only are you at risk of being fired, but you will also be unable to devote the necessary time and energy to trading. Twice the trouble.
  • Do you have a high enough risk tolerance to engage in day trading?
  • Even if you have the financial means to lose money day trading, are you willing to do so? Do you have the stomach to watch your portfolio fluctuate on a daily basis? If not, maybe day trading isn’t for you.

If you’ve decided that day trading is the right crypto path for you, the sections that follow will give you some pointers to keep in mind before you get started.

Define Cryptocurrency Trading Sessions

Because cryptocurrencies are traded across borders, one way to define a trading day is to look at trading sessions in financial capitals around the world such as New York, Tokyo, the eurozone (a group of European countries whose official currency is the euro), and Australia. This method adheres to the same trading sessions as the foreign exchange (forex) market.

cryptocurrency time zones
Cryptocurrency trading based on international timezones

Some sessions may offer better trading opportunities if the cryptocurrency you intend to trade has higher volume or volatility during that time period. For example, a Chinese-based cryptocurrency, such as NEO, may see higher trading volume during the Asian session.Some sessions may offer better trading opportunities if the cryptocurrency you intend to trade has higher volume or volatility during that time period. For example, a Chinese-based cryptocurrency, such as NEO, may see higher trading volume during the Asian session.

Understand That Day Trading Crypto is Not Thesame as Daytrading Other Assets

When trading traditional financial assets like stocks or forex, you can look for pre-established fundamental market movers like a company’s upcoming earnings report or a country’s interest rate decision. For the most part, the cryptocurrency market lacks a developed risk-event calendar. As a result, conducting fundamental analysis to develop a day-trading strategy for cryptos is much more difficult.

Make a Time For It

Depending on your personal schedule, you may want to consider setting aside a specific time of day to work on your trades. In theory, the ability to trade around the clock is pretty cool. During a sleepless night, you can simply open your trading app and begin trading. However, this adaptability can backfire if you begin to obsess over it.

Staying alert during day trading, or night trading, is critical because you must develop strategies, identify trading opportunities, and manage your risk multiple times throughout the trading session. Having a concrete discipline pays off for many people.

Begin Small

Day trading is fraught with danger. So, start small and gradually increase your capital as you gain experience until you get the hang of it. Some brokers even allow you to begin trading with as little as $50.
If you begin trading on a small scale, make sure you are not using margin or leverage to increase your trading power. Leverage is one of those extremely risky tools that is being marketed as an opportunity. It enables you to manage a larger account with a small initial investment by borrowing the remainder from your broker. If you’re trying to test the waters by starting small, using leverage will undermine your efforts.

Don’t Take Too Many Risks

According to Investopedia, most successful day traders stake a small portion of their account — no more than 2% — with each trade. If you have a $10,000 trading account and are willing to risk 1% of your capital on each trade, your maximum loss is $100 (0.01 $10,000). As a result, you must ensure that you have enough money set aside for potential losses and that you are not taking on more risk than you can afford.

Protect Your Cryptocurrency Wallet

One major issue with day trading cryptocurrencies is keeping your cryptocurrency wallet secure. Online wallets are the least secure cryptocurrency wallets. Because you’ll need your capital available throughout the trading day, you may be forced to leave your assets on your exchange’s online wallet, which exposes you to the risk of hacking.

One way to increase your security is to use brokers who facilitate such services rather than actually buying and selling cryptocurrencies.

Avoid Scalping At All Costs

Scalping is a short-term trading strategy that some traders use. It essentially entails frequently entering and exiting trades, sometimes in a matter of seconds. When you pay commission fees on every trade, you not only expose yourself to a lot of market risk when scalping, but you can also burn out before you make any profit. Individual traders rarely profit from scalping. Now, if you work for a company that has access to low commission fees and large trading accounts, the story may be different.

Cryptocurrency Investing: Profiting Within Days

If you want to trade in the short term but don’t want to be glued to your computer all day, this time frame may be for you. Swing traders are traders who hold their positions overnight in traditional trading.
Range trading is the most common trading strategy for swing traders, in which instead of riding up a trend, you look for a cryptocurrency whose price has been bouncing up and down within two prices. As you can see, the idea is to buy at the bottom of the range and sell at the top. If you’re working with a broker who offers short-selling services, you can also go the other way.

cryptocurrency range trading
A simplified range-trading strategy

Of course, the ranges in real life aren’t as neat and pretty as the example. You must be skilled in technical analysis to identify a range. A variety of technical chart patterns and indicators can assist you in determining a range.

One disadvantage of swing trading over day trading is that you may not be able to obtain the optimized tax rate designed for day traders in some countries. In fact, swing trading is taxed in a gray area because you get an optimized tax rate if you hold your positions for more than a year.

If you’re trading cryptocurrency market movements without purchasing them, make sure you’re not paying exorbitant commission fees for holding your positions overnight. Before developing your swing-trading strategy, consult with your broker.

Cryptocurrency Investing: Profiting Within Weeks

In traditional markets, this time frame falls under the category of position trading. This type of short-term trading is the least risky, as it is still shorter than a long-term investing strategy but longer than day trading. However, “least risky” does not imply “no risk.”
You can identify a market trend and ride it up or down until the price reaches a resistance or a support level for this type of trade. A psychological market barrier that prevents the price from rising is referred to as a resistance level. A support level is the inverse of a resistance level: a price that the market has difficulty “breaking below.”

To keep your positions open for several weeks, you must keep your crypto assets in your exchange’s online wallet, which may expose you to additional security risks. For this type of trading strategy, you may be better off using a broker that offers price-speculation services so you don’t have to own the cryptocurrencies.

As shown in the figure, one popular position-trading strategy entails the following steps:

  • Identify a pattern (using technical analysis).
  • Wait for a reversal.
  • Buy on a pullback within an uptrend.
  • Profit (sell) at a resistance level.
cryptocurrency pullback
Buying at the pullback in an uptrend market, taking profit at resistance

And there you have it! The 3 most common short-term timeframes for investing in cryptocurrency. I trust you have found this helpful. Do kindly leave your questions and comments in the comments section below. Thanks for your time!

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