When investing in crypto seems to be simple, and everything that you need to do is to buy an asset for a lower price and sell it for higher after months or years, crypto trading requires advanced skills and knowledge, which we will talk about today.
Is it good to risk a large amount of money without particular experience, furthermore, considering the specifics of the cryptocurrency market, which is sensitive even to the news?
As stated in the topic, today we will get familiar with the multiple timeframe analysis, which is needed to create accurate trading strategies based on the direction of the main trend.
What is multi-timeframe analysis in the crypto market?
A multiple timeframe analysis or a multi-timeframe analysis is a procedure of monitoring the same currency pair from the perspective of different timeframes.
In simple words, multi-timeframe analysis is an opportunity to look at the crypto market clearly, and from different directions at the same time.
Where to apply the multiple time frame analysis?
The optimal timeframes for identifying trends and entry points depend on the type of trader and holding period. As a general rule, traders should use a ratio of 1:4 or 1:6, such as a 1-hour chart for entries and a 4-hour chart for spotting the trend.
Three-time frames are generally analyzed:
Consider the liquidity of the crypto market
Despite many trading strategies, which are used on the traditional market can be successfully applied to the crypto market, there are some concerns to which every crypto trader should pay attention.
Remember, that some cryptocurrencies have less liquidity than stocks or forex, which makes some timeframes unuseful. For instance, monitoring one-minute or one-hour charts makes no sense for some assets, that only trade every few days.
To be honest, we want to note, that there is no best time frame, which will suit every crypto trader and every trading strategy, but we can help you find the best timeframe for you.
In general, the main rule is quite simple – the longer the time frame, the more reliable the price predictions will be.
A bit of advice, especially for newbies – don’t hurry to have deals with shorter time frames, as these charts are usually more polluted with false moves and noise, which can confuse you. Ideally, traders should use a longer time frame to define the primary trend of whatever they are trading.
You should determine a holding period, which is related to your trading strategy, to discover which time frames you should pay attention to. Once the holding period is determined, investors choose shorter and longer period charts based on the 1:4 or 1:6 principle, which helps calculate the time difference between various charts.
The selected time-frames will depend on the type of your trading strategy. Long-term traders won’t get much value from hourly or smaller time frames, whereas day-traders shouldn’t primarily be looking at weekly or monthly frames. Main examples of multi-timeframe analysis in action:
Getting closer to the conclusion, we want to summarize that multi-timeframe analysis is binding in cryptocurrency trading to see the trend clearly to establish an accurate strategy. In simple terms, every chart has its purpose and can be appropriately treated only while the clear signal appears. Therefore, you should monitor different charts of one trading pair simultaneously to prevent missing anything essential and avoid treating small movements like serious changes in actual Bitcoin price direction.
Without any doubt, almost everyone can invest in cryptocurrency and make a profit after some time without any knowledge and skills. But will this one-time lucky reward be sufficient for a fulfilling living? Probably no.
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