Three popular short-term trading strategies used by crypto traders

Trading
August 1, 2019

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.

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 accordance with the selected approach, all trading indicators must be customized to fit our approach. Hence, what you won’t do in short-term trading is 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 being said, below we take a look at the three most popular short-term trading strategies used by crypto traders on a high-performing and reliable DEX such as the Sparkdex.


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. For this purpose, Bitspark offers very competitive rates and allows you to trade cryptocurrencies and stablecoins securely.

Trading strategy based on the intra-day support and resistance levels is one of the most popular strategies for short-term traders. In this particular case, technical analysis is based on 20 MA, an hourly chart, and basic horizontal/diagonal trend lines connecting the previous highs and lows. 

The price chart below depicts a BTS/USD trading pair on the Sparkdex. As seen in the chart, the technical analysis has shown that the price action is trapped within a symmetrical triangle, (the green converging lines), thus a breakout is imminent. Furthermore, the 20 MA converges with the triangle resistance, creating a resistance block. 


BTS/USD on Sparkdex (daily levels)
BTS/USD on Sparkdex (daily levels)


If there is an H1 close above the identified resistance block, a long trade may be opened. As this is a short-term strategy and we aim for moderate gains, the take profit target can be seen in the context of a horizontal resistance line (the blue line). 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. 

This trade is in close to the recommended risk-reward (R:R) ratio of 2:1, as we risk around 10 pips to make 17.

Hammer pattern

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.

BTS/USD on Sparkdex (hammer)
BTS/USD on Sparkdex (hammer)


As seen in the BitShares price chart above, the BTS/USD was in a bearish market as it had been creating a series of lower lows and lower highs. At one point (the highlighted candle) the market creates a new short-term low, after which it strongly rebounds to close positively at the top of the candle. 

The hammer pattern is very effective as it offers clearly defined  levels to a trader. Any move below the low of the hammer candle is seen as an invalidation zone. Hence, 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.

Trend lines

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.

The BitShares price chart below shows a BTS/USD trading pair moving slightly higher on the M30 time frame. Every time the price descends, it finds a support at the trend line and bounces higher. At this point, we are waiting for a potential fourth touch, which will be used to open the trade. The stop should be located beyond the third bounce swing.


BTS/USD on Sparkdex (trend line)
BTS/USD on Sparkdex (trend line)


Despite the fact that the price moves slightly beyond the trend line, the trade is still intact as it didn’t go beyond the third bounce swing. Similarly to the hammer pattern strategy, trend lines are effective due to the innate precision. Again, our R:R ratio will determine the take profit. 

Summary

There are numerous different short-term strategies a trader can apply in active trading. In this blog post, we described three popular intraday strategies based on a clear technical analysis and recommended R:R ratio. All three strategies can be easily applied on Sparkdex, due to the functionality of its charts and high performance of the trading engine.

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