Short-term trading is one of the most common trading approaches used in markets today. Often used by forex and stock market traders, short-term trading has become extremely popular with crypto traders as well. Due to the high volatility of cryptocurrencies, there are many trading opportunities that arise on the same day and in this article, we’ll discuss a few short-term trading strategies used by crypto traders eyeing those trading opportunities.
Often referred to as “active trading”, short-term trading is based on the short-term price movements. Arguably the most popular short-term approach is day trading, in which trading positions are opened and closed within 24 hours. All strategies, explained below, are based on the intra-day approach.
In line with that trading approach, all trading indicators must be customized to fit short-term trading – don’t use the daily or weekly moving averages to determine the price direction. The lower time frames – M5, M15, M30 and H1 – are a must as well.
With that in mind, let’s go into the 3 most popular short-term crypto trading strategies taking a closer look at support/resistance levels, hammer pattern and trend lines.
Daily Support/Resistance Levels
All short-term trading strategies, especially in the volatile cryptocurrency market, should be based on the detailed technical analysis. By its nature, short-term traders aim for small to moderate gains as the time frame is very narrow. As such, all levels – entry, take profit, stop loss – must be very precise.
The intra-day support and resistance levels are one of the most popular strategies for short-term traders. What most crypto traders would do is to perform technical analysis based on 20 MA, an hourly chart, and draw basic horizontal/diagonal trend lines connecting the previous highs and lows.
For example, you might see that the price action is trapped within a symmetrical triangle, which could mean a breakout is imminent. Applying the 20 MA, a convergence with the triangle resistance level creates a resistance block.
Seen as this is a short-term strategy, we aim for moderate gains with our take profit target at the risk-reward ratio (R:R ratio) that fits your trading style. The previous resistance block (triangle resistance + MA) is now seen as our invalidation level. A close at, or below this level, will close the trade.
The Hammer candlestick pattern has proved to be one of the most effective short-term trading strategies. As the name itself says, the pattern is based on a candle that looks like a hammer – a long lower wick and a short body at the top of the candlestick with little or no upper wick.
This pattern occurs in a bearish market. The formation of the hammer candle suggests the market is trying to create, at least, a short-term bottom. What usually follows is a strong push higher. The second candle that follows the hammer candle should be a strong bullish candle, also pointing towards a market reversal.
The hammer pattern is very effective as it offers clearly defined levels to a crypto trader. Any move below the low of the hammer candle is seen as an invalidation zone. So, at this point, the risk is around 10 pips. The take profit can be calculated based on the R:R ratio, preferred by a trader.
The trend line trading strategy is one of the most basic strategies a cryptocurrency trader can use in active trading. The trader should watch closely in order to identify trend lines connecting at least three consecutive lows or highs.
Say you are looking at a trading pair which is moving slightly higher on the M30 time frame. Every time the price descends, it finds a support at the trend line and bounces higher. A crypto trader looking for a short-term opportunity would then wait for a potential fourth touch, which will be used to open the trade. The stop should be located beyond the third bounce swing.
Similarly to the hammer pattern strategy, trend lines are effective due to the reliable precision this short-term crypto trading strategy offers. Again, our R:R ratio will determine the take profit.
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