Summary

Short-term trading is a preferred trading method for thrill-seeking traders. Do you find yourself glued to the 1-minute chart? Do you like getting in and out of trades quickly, even faster than an investor can open an earnings report? If so, ultra-short trading may be a strategy worth considering.

Short-term traders aim to profit from small price fluctuations. Their goal is not to make large profits from each trade, but to make small profits over time. If done correctly, they will grow their trading account over time. Ultra-short-term traders typically utilize leverage and tight stops.

Do you want to know how short-term traders operate? Please continue reading this article.

Contents

• Introduction
• What is ultra-short-term trading?
• How do short-term traders make money?
• Short-term trading strategy
• Should I start ultra-short-term trading?
• Summary

Introduction

Ultra-short-term trading (commonly known as "scalping") is a commonly used short-term trading strategies. In fact, it is one of the most common day trading strategies. It involves shorter time frames, quick decision-making, and a host of technical analysis and charting tools. Therefore, many professional day traders dedicate a portion of their trading account to ultra-short-term trading.

Because ultra-short-term trading is effective in many different financial markets, ultra-short-term traders are widely active in the stock market, Forex trading, and cryptocurrency fields.

If you are new to trading, be sure to check out the Comprehensive Guide to Cryptocurrency Trading for Beginners. In this article, we provide everything you need to know about the deal. Once you are familiar with different trading strategies, you can return to this article to learn more about "short-term trading".

Let’s first introduce what you need to know about cryptocurrency short-term trading and look at some of the most common short-term trading strategies.

What is ultra-short-term trading?

Short-term trading is a trading strategy that attempts to profit from relatively small price movements. Ultra-short-term traders are not looking for huge profits. Instead, their goal is to profit from small price changes one after another.

As a result, scalpers may place multiple trades in a short period of time in an attempt to take advantage of small price fluctuations and market inefficiencies. The idea is that over time, these small gains will add up and compound, adding up to a significant amount.

Due to the short timeframe involved, short-term traders rely heavily on technical analysis to generate trading ideas. Since most fundamental events occur over the long term, ultra-short-term traders rarely pay attention to fundamental analysis. Still, fundamental analysis can have a big impact when deciding which assets to trade. A stock or token may increase interest due to certain news or fundamental events, typically with higher volume and good liquidity - at least for a period of time. At this point, short-term traders can step in and profit from the increased volatility.

In summary, day traders take advantage of short-term volatility rather than larger price swings. This strategy may not be suitable for everyone, as it requires a deep understanding of market mechanisms and the ability to make quick decisions, often under pressure.

How do short-term traders make money?

So, what technical factors will ultra-short-term traders consider? Volume, price action, support and resistance levels, candlestick chart patterns, etc. are all commonly used to identify trading patterns. Some of the most common technical indicators used by day traders include Moving Averages, Relative Strength Index (RSI), Bollinger Bands, VWAP, and Fibonacci Retracement tools.

Many day traders also use real-time order book analysis, volume profiles, open interest, and other sophisticated indicators. In addition, some short-term traders will also create their own customized indicators to give themselves an advantage in the market. As with any other trading strategy, finding a unique edge in the market is critical to success.

The key to ultra-short-term trading is to identify small opportunities in the market and take advantage of them. These strategies can easily become unprofitable once they become known to the public, so day traders may keep their personal trading portfolios closely confidential. That's why it's so important to build and test your own strategies.

As we have discussed, day traders typically trade on very small time frames. This could be a intraday chart such as a 1 hour, 15 minute, 5 minute, or even a 1 minute chart. Some ultra-short-term traders may even focus on time periods of less than a minute.

However, these time periods fall under the category of high-frequency trading robots, which may not be reasonable for humans. Machines can process large amounts of data quickly, but most people don’t make the best decisions while staring at a 15-second chart.

Here are some more things to consider. We all know that signals and levels on longer time frames are generally more reliable than signals on shorter time frames. This is why most ultra-short-term traders still focus first on the longer-term market structure. Why? They start by getting a rough idea of important long-term range levels and then zoom in on them to look for ultra-short-term trading options. This shows that it is useful to look at market structure over the long term, even for short-term trading.

Even so, the trading and investing strategies of different traders can vary greatly. There are no strict rules for day traders, but there are some guidelines you can consider when making your own.

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Short-term trading strategy

We can consider two types of ultra-short-term traders — Autonomous decision-making ultra-short-term traders and Systematic ultra-short-term traders.

Autonomous traders make trading decisions "on the spot" based on the market dynamics they observe. They may or may not have specific requirements for when to enter or exit a trade, but their decisions are largely based on the conditions at hand. In other words, discretionary traders may consider many different factors, but the rules are less strict and they rely more on intuition.

Systematic short-term traders use a different approach. They have a well-defined trading system that basically acts as a trigger for entry and exit. A trade is entered or exited if certain conditions in their ruleset are met. Compared with autonomous decision-making trading, systematic trading is more data-driven. Systematic traders rely less on intuition and more on data and algorithms.

In fact, this classification applies to any other type of trader. However, when it comes to short-term strategies, the difference between the two is even clearer. After all, discretionary trading may not work consistently over longer time horizons.

Some ultra-short-term traders will adopt a strategy called "range trading". They wait for a certain price range to be established and then trade within that range. The idea behind this is that the low of the range will act as support and the high of the range will act as resistance until the price range is broken. Of course, this is by no means a guarantee, but can still serve as a successful short-term trading system. However, good traders will prepare for a breakout from this range by placing a stop loss.

Another short-term trading technique involves exploiting the bid-ask spread. If there is a sizable difference between the highest bid and lowest ask, scalpers can profit. In other words, this strategy is more suitable for algorithmic trading or quantitative trading. Why? Because humans are less reliable than machines at spotting tiny inefficiencies in markets. This field is therefore flooded with a large number of trading robots. As such, traders who want to employ this strategy often have to compete with algorithms.

Ultra-short-term trading usually requires the use of leverage. Since the target percentage is relatively small, scalpers often want to use leverage to increase position size. Therefore, ultra-short-term traders often use margin trading platforms, futures contracts and other financial products that provide leveraged trading. However, since day traders aim to profit from smaller moves with larger positions, they often need to be aware of sliding spreads.

Should I start short-term trading?

It all depends on which trading method is suitable for you. Some traders don't like having open positions while they sleep and therefore choose short-term strategies. Day traders and other short-term traders fall into this category.

On the other hand, long-term traders like to gather detailed information for decision-making over a longer period of time and do not mind holding open positions for several months on end. They may simply set entry points, profit targets, and stop losses, and occasionally monitor trades. Swing traders fall into this category.

So, if you want to decide whether to trade short-term, you need to learn more about which trading style is more suitable for you. Additionally, you need to find a trading strategy that matches your personality traits and risk profile so that you can use it consistently and profitably.

Of course, you can also try a variety of different strategies to see which ones work and which ones don’t. Paper trading on the Binance Futures testnet is a great way to test this. This allows you to test ultra-short-term trading strategies without risking real money.

Summary

Ultra-short-term trading is a commonly used short-term trading strategy designed to trade within small price fluctuations Profit from it. This trading technique requires discipline, market knowledge, and quick decision-making.

Is ultra-short-term trading a good trading strategy for you? If you are a beginner, you can focus on more long-term strategies such as swing trading or buy and hold. If you have some experience, short-term trading may be the right choice for you. But no matter what you do in the financial markets, you should always consider risk management principles, such as using stop losses and appropriate position sizing.

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