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AAX Trends

3 Best Crypto Trading Time Frames

3 Best Crypto Trading Time Frames

Explainers

28 Oct 2022

In order to actively trade crypto and gain profits, traders must know how to identify an underlying trend and take positions accordingly.

Most beginner traders will appreciate the importance of trends, but the difficulty lies in forecasting how long a trend will last and more importantly, determining ideal entry and exit points.

Choosing the right time frame is arguably one of the most important elements of a successful crypto trading strategy. A time frame - ranging from minutes or hours to days or weeks - refers to the amount of time that a trend lasts in a market.

Crypto trading trends can be classified as primary, intermediate, and short-term. However, crypto markets exist in several time frames simultaneously. That means there can be conflicting trends within a particular market. Typically, longer time frames produce more reliable signals. You’ll notice that when you zoom in and look at the 5 or 15 mins chart, it becomes much harder to distinguish between false and validated moves.

The time frame you operate in determines the frequency of your trades. You should always be in line with your risk appetite and skills as a trader. For example, immediate time frames are actionable right now and are of interest to day-traders and high-frequency traders. Most crypto traders take a more comprehensive approach and use what is called a multi-time frame analysis.

What Is Multi-Time Frame Analysis?

Ideally, crypto traders should first use a longer time frame as a base to define the primary trend and then dig into the preferred time frame to pinpoint specific crypto trading opportunities.

For a day trader, this could mean using the 60 mins chart to define the primary trend, combined with a 5 mins chart to determine specific entry and exit points in the short term. A swing trader might use weekly charts to define the primary trend and 60 mins charts to determine the short-term trend while using the daily chart to make trading decisions.

While it’s a rule, generally speaking, crypto traders use a ratio of 1:4 or 1:6 when it comes to defining their multi-time frame analysis, such as a 1-hour chart for entries and exits combined with a 4-hour chart for spotting the primary trend. You could use more than two timeframes, but the added complexity creates diminishing returns to realizing benefits.

What will help with executing your crypto trades is a multi-time frame analysis.Have you ever wondered why professional crypto traders use multiple screens? Well, this enables them to display two charts on separate monitors so they can quickly reference the long-term trend before entering or exiting short-term positions.

Specific crypto markets that have shorter time frames do not apply. If a fringe coin has very low liquidity, there is no point in looking at charts on a minute-by-minute scale. If anything, it’s probably more useful to look at the charts weekly or take a more fundamental approach and only get into trading multi-time frames once the market for this specific digital asset expands and matures.

Examples Of Different Time Frames For Crypto Trading

Short-Term Time Frame: Day Trading

Because of the high volatility in crypto markets, day trading is a popular strategy used by many crypto traders. It allows the trader to get into and out of the trade on the same day. A day trader will likely focus on the 30-minute trends and use the 5-minute chart for signals - applying a 1:6 ratio.

The day trader could apply the 200-period simple moving average to the 30 mins Bitcoin chart to determine the longer-term trend first. Say the trader spots a trend where Bitcoin holds up above the moving average. The trader then shifts down to a 5-minute chart and applies an indicator, such as the Commodity Channel Index (CCI). Since we have already determined the upwards primary trend from the 30 mins chart, we are only looking for a buy signal which is when CCI crosses above 100.

Medium-Term Time Frame: Swing Trading

Swing traders are most likely looking at the primary trend on a daily chart and then drilling down to a 4-hour chart to identify specific entry and exit signals. Of all technical indicators, Donchian channels are used often by swing traders to determine the trend and then follow it.

Once the price reaches the upper channel, then the market is considered in an uptrend which indicates a buying opportunity. This uptrend stays in force until the prices fall to reach the lower channel, which is where swin traders will usually place their stop loss.

Long-Term Time Frame: HODLers

While HODLers take a long-term view and don’t trade often, they do sometimes make very strategic moves with an eye out for cycle tops and lows. A multi-time frame analysis helps to determine these points by combining weekly charts for the primary trend and a daily chart to make decisions.

As long as the weekly chart keeps printing higher highs and higher lows, the trend is viewed as upward. The HODLer can then use the daily chart to determine if the market is overbought and is, therefore, due for a correction. It’s common for crypto markets to correct severely, even to around 80% for some coins, so taking some profits is never a bad idea for a long-term HODLer that spots the trend ending on the weekly charts.

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