Trading stocks and shares provides a wide range of expiry times, which is one of the reasons it attracts so many traders. Most offer options with various duration of the trades ranging from a few seconds to years. The Short Term investments have proven to be quite popular among investors not only because they provide an exciting and dynamic trading experience, but also because with their quick expiry, traders can open more positions within a shorter time period.
The argument which one is better − short term or long term trading − has been a longstanding one among online traders. As with any other method of financial trading there is no right answer since it all depends on the approach you will choose.
However, there are some important things you have to keep in mind when trading on bigger time frames. First of all you have to consider carefully what expiry time you will choose when looking for a direction of your trade, because the expiration time depends on what time frame is used. It wouldn’t be wise to purchase a trade, which is expiring at the end of the day if you are getting your strike price from the short term time frames like 60 seconds or 5 minutes. When trading short term you shouldn’t be looking at the daily, weekly or monthly charts because the information there doesn’t apply to the short expiry times of these deals.
The most essential thing in stock trading is to pick the right expiration date. That’s why it is advisable to do some research on the matter and prepare yourself well before you start opening positions.
Longer Time Frames for Trading on Short Time Frames
Longer time frames, however, can be used in conjunction with trading on small time frames. If you want to be a successful trader, you have to be able to identify trends and indicators, which show the potential future movements on the market. For that purpose it is very handy to use the analysis tools provided by brokers.
The biggest time frame analysis charts available are the monthly ones where you can find certain patterns, which will allow you to see the formation of possible trends. The monthly charts can be used for the so called top/down analysis, which enables you not only to identify the trends for the longer periods of time, but to apply the information for shorter periods as well. After identifying trend lines for the bigger time frame you can follow it until it breaks and then look for continuation in the opposite direction.
In order to compare in details long and short term trading read our article about 60 Seconds Trading.
When you complete the analysis on the longer time frame, for example the monthly chart, you can move to the lower time period − in this case the weekly chart and continue the analysis. This way you can predict market movements by going for shorter and shorter time frames until you get to hourly charts. Taking the data from the monthly and weekly charts you can apply it to trading on the smaller time frames.
Using the bigger time frames you can solve resistance levels by going to the 4h and hourly charts and looking for divergences in the prices as they are forming. This could allow you to calculate the perfect striking price and pick the smallest possible expiration date for successful outcome so that you could move on to the next trade.