Short-term Trading Methods
Crypto for Advanced
There are two types of crypto traders in this world: the HODLers and those who trade to achieve short-term targets for the sake of long-term prosperity. Short-term traders aim to generate a consistent income from their sporadic trading activity, which entails opening and closing positions in a matter of weeks, days, hours, minutes or even seconds.
Such traders adopt methods & strategies which exploit the small price change increments and take advantage of the heaps of rewarding opportunities. Those which engage in short-term trading on a regular basis seek recurrent patterns or themes which are familiar to them and this way, traders capitalize on the consistent profit opportunities which arise.
Short-term trading activity can be fundamentally driven, such as recent revelations regarding a cryptocurrency’s use case, or technically driven, such as the price of a digital asset touching a sturdy support level. The bolstered force of the two with a dash of the right sentiment in your favor, creates a recipe for hot & steamy profits.
The most popular short-term trading methods are day trading, swing trading and scalping, Let’s get to the nitty gritty of each.
Perhaps the most popular short-term trading method is day trading, which entails opening and closing trading positions on the same day. Given that the crypto market is active on a 24/7 basis, the market continues to present and envisage trading opportunities.
Usually, day-traders initiate more than one order in a day, capitalizing on the volatility and perhaps the instability of crypto prices. This is typically based on detailed technical analysis, as traders aim to make small or moderate profits by utilizing moving averages, support/resistance levels or general trendlines.
For example, day-trader Steven opened a buy position for 1 Ethereum coin at the price of $1,200. After closely and actively watching the price movements of ETH, he notices that the $1,250 mark reached after a few hours seemed appropriate for closing the position.
Steven then closes the buy position and gains $50 in profit.
Another prominent short-term crypto trading method which is quite similar to day trading, is opening positions on a certain day and closing them on another, and that is known as swing trading. It follows the same idea of day trading in the sense of capturing short-lived market opportunities for profit.
While this is also predominantly technically-driven, the profits can also result from fundamental matters. For example, if Filecoin (FIL) lowered the fee for renting digital cloud storage and that created positive sentiment, the price of FIL may surge.
Here, trader Steven can buy 100 FIL at $4.3 and perhaps cash-out when the price hits $5 a few days or weeks later.
In this method of short-term trading, traders take advantage of the smallest of price movements. Scalping is when traders open and subsequently close the position within minutes, if not seconds. This strategy is purely technical, exploiting the ups & downs of crypto asset price adjustments, and thus requires active and close monitoring of charts, trends and patterns.
One can buy 1 Bitcoin (BTC) at $16,700 and sell it at $16,710 a few seconds later. Given prevalent trend lines and price indicators, doing that enough times can generate monumental profits at the end of the trading session, especially with the fiery mechanism of leverage.
Benefits of Short-term Trading
Like any other endeavor, short-term trading has its advantages and disadvantages:
- Generates faster returns on investments
- Rewards profits which accumulate to larger gains
- Fosters learning technical, fundamental and sentimental analysis
Drawbacks of Short-term Trading
- Very time-intensive to keep track of regular price movements, news and sentiment
- Typically for advanced traders which understand the technical readings of assets
- Can lead to significant losses if no exit plans are put in place
Rules of Thumb
So, it seems that you’re ready to dive deep into short-term trading. Bravo!
Before doing so, note down these three rules of thumb:
1- Use Leverage Carefully
Leverage is a fiery two-edged sword which can amplify profits or unfortunately, losses. Learn to use leverage wisely and appropriately to wield it to your advantage and not the other way around. If you’re not experienced with leverage, it’s best to avoid it until you learn the ropes.
2- Stop-loss Won’t Hurt
Even if you’re sure of your trading strategy, implementing stop-loss levels to your active positions can only safeguard your investments and limit the potential losses which you can incur. Stop-loss levels act as barriers which can’t be breached, and they can be extremely valuable especially for beginners.
3- Sometimes, You Must Take The L
When we say must, we mean it. Not all your trading decisions will be correct, as things can go the wrong way unexpectedly or in an unprecedented manner, even when all the boxes are ticked. Here, accepting small losses is a better option than doubling-up on the wrong move.
All-in-all, short-term trading is a very fun way to trade. Many profits captured from the crypto market are from daily traders & scalpers which keep up with the latest news, sentiments and technical indicators of the assets they trade.
The adrenaline rush when quickly gaining considerable profits can be addicting. Who wouldn’t want profits every day? Despite that, short-term trading can be risky, especially when positions are leveraged. Hence, it is wise to avoid “50-50” situations, or at least to accept small losses.
Imagine the small losses as letting a tiny amount of air out of the balloon that is the profits accumulated after hours of studying charts and making the right choices. It’s not worth losing your hard-earned profits due to one big loss. Therefore, it is always advised to add stop-loss levels to your positions so as to not lose more money than you can handle.
History repeats itself, but not always. Stay up to date with the latest market revelations on BITmarkets to pave the way towards achieving long term prosperity.