This is Tai Zen again – currency analyst for PrisonOrFreedom.com. It’s a blog where we talked about the things that allow us to obtain freedom in our health, wealth and relationships. And Bitcoin is one of the new technology that’s coming out that’s going to allow how many people on the planet to have freedom in their finances.
So we will talk a lot about Bitcoin here at PrisonOrFreedom.com. In this 3rd episode of our Currency Analysis, I want to talk about how to choose the best time frames for Bitcoin and Forex markets. I get this question a lot about what time frame should you be using, should you look at daily charts, weekly charts, monthly charts, 5-minute charts, 1-minute charts.
I’m going to update my charts here for the Bitcoin and then the Euro and things like that and along the way, I’m going to talk about how to select the best… I wouldn’t say the best but the ideal time frame for your particular style of trading.
Let’s go ahead and get started.
Here in front of me, I have the TradingView.com site, I like to use this simply because it’s very very user-friendly. It’s one of the most user-friendly platforms that I’ve seen for technical analysis.
Here is the chart from the other day from the currency analysis number 2 episode 2. Let’s go ahead and take a look at this and update it.
You’ll notice that since we put in those support and resistance lines right here, the price has not come down to it.
When you get here notice how prices being compressed like that, the best way I found a fix that is just clicked on the reset chart, it brings it back to the quote-unquote normal size that is supposed to be.
The way that you determine the time frame that you use is based on the two things, one is the size of your trading account and number two is the amount of trading experience that you have. So, let me do an example for you guys really quick.
If you guys are trading on this here … notice that this channel that I drew in right here, this downward hourly… 60-minute channel, you’ll notice that the width of this channel and the way that you measure the width of any channel is through the vertical distance.
We come down here and use this price range. If we just go from, let’s say, from here, on top of that down to here, to the bottom of the channel, we have like a $500 range. Notice that it says minus 494 so it’s pretty much 500, we can round it up to a $500 range.
What that means is that the channel here has a $500 vibration meaning that it’ll vibrate back and forth between $500 and you have to ask yourself “Can you handle that?”, “Can your trading account handle a $500 swing?” if you are looking to take a risk if you are a beginner…
Let’s say that you are a beginning trader and an intermediate trader and an advanced trader.
So, a beginning trader would want to use somewhere around 1/10 of 1%. An intermediate trader would use somewhere around 3/10 of 1% and then an advanced trader uses anywhere between .05, half of 1% to 1%. But I personally do not recommend going over more than half of 1%. Just keep that in mind.
Basically, if you have a let’s just say for example, that you have a $1,000 trading account and a $10,000 trading account and a $100,000 trading account. That means that if you had a $1,000 trading account and you could not risk more than 1/10 of 1%.
Let’s just say that this equals this times, this right here. That means that you don’t risk more than $10. Something isn’t right here. The math isn’t right because this isn’t right. That’s what it should look like.
If you’re a beginner and you have $1,000 trading account. You probably don’t want to risk more than…
You guys know how to do it, you guys can figure out the math you by yourself, what I do just take this multiply by that to get this.
I’m not going to waste your time doing the rest of this. But for a beginner, you really don’t want to spend more than a dollar for a stop loss.
If you have $10,000 account, no more than $10 for a stop-loss, a $100,000 the trading account, you don’t want to risk more than $100 on a stop-loss.
Actually, when you’re beginning trader, there’s no reason for you to be trading this size account anyway, the most that you would trade is probably something like that. Don’t do this and lose $100.
Keep us in mind guys that when you’re trading, in the first, I would say, 6 to 12 months of your trading career, that’s where you going to lose the most money. And that’s what I call market tuition. You have to pay a price to learn how to trade. There’s no getting around it. Nobody learns how to trade and become profitable for free.
If anybody tells you that they don’t lose any money to trade, they’re probably lying to you. Whenever I talk to another trader, I always like to get an idea of how much their market tuition is. So when I talk to another trailer, I will ask him, “Hey, how much did you lose to learn how to trade?”
You know for me personally, I lost close to $40,000 to learn how to trade. When another trader tells me that they only lost $100 to learn how to trade, I don’t believe that. I don’t believe that you’ve made enough mistakes by losing $100 to have learned how to trade successfully. At least I haven’t met…
All the traders that I have met that trade stocks and Forex… Bitcoin is new so I don’t know how much you have to lose to learn to trade that but it in stocks, Forex and futures market, most people that I’ve met, that have learned to trade consistently profitable and trade successfully, they usually lost quite a bit, it’s usually more than $10,000. All the people I met have lost like 20, 30, 50, 100, 200 thousand dollars before they learn how to trade.
If somebody tells you they only lost $1,000 or something and now they’re a good trader, I never believe anything like that.
Even the guys at Goldman Sachs with the guys at Bear Stearns or Lehman Brothers or any of these big institutions where they have somebody over your shoulder and monitoring what you’re doing and making sure that you do it right.
Even those guy that’s in a controlled environment where you’re not even able, you’re not even capable of… there’s no way for you to lose more than what the institution allows you to lose. Even those guys lose more than a thousand or $10,000 before they are they learn how to trade so for someone to say that they learn how to trade for a hundred, two hundred or a thousand dollars. To me, that’s just a bunch of B.S.
Now that we know how much we’re capable of losing, then we have to monitor this and look at the swings in price.
Our channel has $500 swings. Obviously, if you have $1,000 trading account, you’re not going to be able to withstand a $500 vibration. If you have a $10,000 account, even though you can withstand the $500 swings back and forth, it still does not make sense because you’re only allowed to lose $10 on each trade. So on $100,000 account even then it’s still kind of tough.
There’re ways that you can reduce the position size to where you can manage this $500 swings, but if you only have a thousand or $5,000 trading account, then this time frame, the 60-minute time frame is not for you because the risk that you have to incur is way too much.
Let’s go ahead. And let me see if I can move this over here, let’s go ahead and move down to, let’s say, let’s cut the time frame in half and see what happens. If we cut the time frame in half, we see that there the trend is a lot different. Let’s just pick a random channel here, let’s say that you were trading between this and this right here.
Now let’s measure the swings the vibration or some people to scientifically I think you called the frequency. But check out the frequency of this, it’s reduced down to $134. Now let’s look at our risk management or money management chart again.
Now, these two people right here, the one that owns a $10,000 trading account and $100,000 trading account it fits within them and then the thousand-dollar trading account, it just depends upon the position size that you trade. If you trade one Bitcoin, obviously, that’s not going to work for you, if you trade like one or two millibits or maybe a few Satoshis or something then you can get away with it. That’s how we look at it.
Let’s go ahead and take a look at the 15-minute, cut the time frame in half again.
Now if we take the time frame here and we draw this time frame here, this trend here. Notice how the depth, the height of it gets reduced. When we measure this, it’s down to about $97. You can round that up to $100. So now the width of this channel is $100.
Now, you have to ask yourself “Is that hundred-dollar channel… does that fall within my trading account size?”. That’s easy for a $10,000 trading account or $100,000 trading account.
If you have $1,000 trading account, it’s still tough. It’s still tough to sit there and watch your account swings in your favourite by 10% and then swings against you by 10%
That’s why the time frames are important based on your account size. Let me go ahead and say this. Number one is the account size determines the time frame that you use. Number two determination is your trading experience
Right now, let me give you guys a few examples here. When I was just starting out when I was just starting out as a beginning trader. I was only able to withstand very small swings in price. So on this chart right here. We have three different price swings.
We have this big channel here where price swings $500 and then we have the smaller channel. This is a medium-sized channel that swings $135 and we have this one that swings $100.
When I first started trading as a beginner back in 2008, I started in March of 2008 was when I made my first live trade. At that time, my job was, I was getting paid about 75 to $100 a day. Let me just put my income here.
So as a beginner back then I was making anywhere between 75 to $100 a day.
Whenever I made a trade and I lost $75, it hurt me tremendously, it hurt me a lot emotionally and it really messed up my mind. Because it was tough to sit there and know that I had to do 8-9 hours of labour each day and then here in my trading, I would lose that in 5 or 10 minutes. So that hurt a lot and it really really hurt me quite a bit to do that.
So that tough to do when you make $75, $100 a day in US Dollars and you make a trade and lose 50 or 75 $100 in 5-10 minutes or even an hour. Because then you look at how much you lose compared to how much you make in your job and you wonder if this is worth doing or not.
So at that time, I had to reduce… I’m just going to put here, my lost minute. So that time I had to manage my losses so that it’s within an emotional reason to me which is less than $20. I try to keep all my losses less than $20 in the stock market.
That means I was only trading my 10 shares, 20 shares, 50 shares at most. I did not even trade a hundred shares at that time. Because emotionally and financially that was way too much for what I could afford at that time.
Now the next thing was that when I started to move up in 2008, 2009 somewhere in the middle of 2009 and the beginning of 2010 was when I was able to make a little bit more money. I was making anywhere between 100 to $200 a day and at that point, I was able to mentally lose less than $100, if I made a trade and I lost $50, it was okay. It was okay for me because I knew that I made enough at my job to not be homeless or not have food.
So at that point, I was able to move up to a bigger time frame. The bigger time frames allow me to have a big reward, but at the same time allows me to have a bigger risk as well. So when I went from like a 1-minute chart to a 3-minute chart to 5-minute chart to 15-minute chart, now I can afford to lose $100 on one trade.
But at the same time, I was able to make 3, 4, $500 on trade also. Whereas in the past when I was trading on a 1-minute or 3-minute time frame, I never made a $500 gain trading a 1-minute chart, not in the stocks and the Forex market.
So now I consider myself to be a pretty much an advanced trader and now my income is at a higher level. So my income is anywhere between 2 to 400 a day. And this is from all my job, my multiple streams of income, my website and I got a bunch of stuff that I’m doing for my trading.
Because of that now I can afford $500 plus swings meaning that if a trade swings $500 against me or in my favour, I don’t flinch on it, it doesn’t bother me one bit. So that’s like the minimum. I should even put this right here.
I should put this so I can handle a greater than $500 loss limit. Because of my account size because of my trading experience and because emotionally, when I say trading experience right here what I mean by that is emotion. That’s what I mean.
Now I’m going to give you guys an example. I’ve had trades where it has a 2, 3 $4,000 price swings before and it does not bother me one bit.
Obviously, if you only trade a 1000 or $10,000 trading account then obviously that’s going to be a huge emotional swing for you to see your account go against you by 2 or 3 thousand dollars.
Obviously when you feel that emotional pain, you should not be trading something that big. No matter how greedy you are, you should not be trading something that big.
I have a friend who we are no longer friends because he has a habit of… He’s a very rich guy and he comes from a very diplomatic family. So he has some old money and he and I stopped being friends after I caught him a few times messing with other guys’ wives.
That’s something that I do not tolerate in my life. I don’t I don’t believe that you should go and try to mess with somebody else’s wife or girlfriend or fiancé. I think that there’s a lot of single women out there in the world and there’s no need to go and mess with somebody else’s woman. And I caught him doing that twice and after the second time, I fired him as my friend.
This former friend of mine, because he had more money than I did, every time he made a trade the price would swing a bunch of money. He did not even flinch one bit if the price fluctuated $5,000 one way or the other, it did not bother him one bit.
I have another trader who was a lot older. He’s in his 60s and trades a multi-hundred-thousand-dollar account. I think it was like 2 or $300,000. He was a position trader and if the price swung $10,000 either way for him each day, that did not bother him one bit because he has been trading for a long time and to handle a $10,000 swings was no problem for him emotionally.
For some people, that could be a huge problem, especially if you’re beginning trader, you’re not going to be able to sit through $10,000 swings. When a price moves against you or in your favour by $10,000 it’s not going to be easy.
You can have to trade a smaller time frame or trade smaller position size for a bigger time frame. In other words, you might trade only on the hourly chart but didn’t trade 10 or 20 or 30 on the smaller time. You have to balance whichever one that’s more emotionally that you can handle emotionally and mentally.
I have another friend who is a businessman and he does not spend a lot of time trading. He spent more time in his business because he makes way more money in his business than he does trading, however, the money that he makes from his business, he has to do something with it.
He just can’t let it just sit there doing anything and earn 0.01 of 1% interest in America. So he puts it into the stock market and he trades it and on his long-term position trades, on his stock, the price can swing 70 or $100,000 a day on him and he handles that with no problem.
Obviously, if he’s letting his account swings by $100,000 against him or in his favour, then he must be trading a multimillion-dollar account. And yes, he is trading a multimillion-dollar account. So for him to handle $100,000 price swings, either way, that’s not a big deal to him, but he’s been doing that for a long time.
All these guys that I’m talking about that have that handle at $10,000 price swings or more, they’re usually in their 60s and 70s. They have been trading for a very long time. So they have conditioned themselves mentally to withstand the price swings.
I consider myself in the late intermediate stage of trading, in the early advanced stages of trading like someone in between. Because mentally I’m still not able to handle a $10,000 price swings yet. Even though I can afford it, I’m not able to handle that.
So that’s why I don’t consider myself like that very advanced trader. I know many traders that can handle a 50 or $100,000 price swings based on the account size at the trading, they trade very large account.
Even if you give me a million dollars right now, I still would not be able to handle a $10,000 price swings. So I’m relegated to trading on the time frame that I am based on my emotional trading experience.
I see that I’m 42 and I can see myself by the time I get to 50 years old that I can handle a 10 or $50,000 price. So that’s not going to be a problem. Now if I could handle a 10 or $50,000 price swings, I could very easily go and get more money from investors to trade. I don’t do that because just mentally I’m not able to handle it at this point in my trading career.
I hope that makes some sense when it comes to selecting the right time frame for your trading. Let’s go back here to the 1-hour again and take a look at what the market’s been doing. I’m going to delete these, right here, real quick, my support and resistance lines are going to remain the same.
Nothing has changed. Let me move out to a 3-hour time frame, here, real quick. We can see bigger candles here. If you guys will notice here, let me get rid of this vertical measuring tool here.
Let’s take a look at the price action here.
If you’ve been following me for any period of time, I do not like to use indicators and stuff simply because they lag, anything that I need to know about what the markets doing is right here reflected in the price chart on the candlesticks.
Let’s take a look here. I think the last time that we talked in episode 2 we were somewhere in this area here. Price has fallen since then. But notice how when the price fell, it stopped right here. Let me use this, notice how price stopped right here in this support area.
See where the price fell and it came up and it tested this area right here and it fell again and then shot up through and now it’s retesting that same area right there. Notice when we talked about trading price action what we’re doing we’re looking at what the prices doing.
Notice how when the price came down here it shot back up to here and then try to set lower lows but it couldn’t. The buyers came in and push the price back up to here. Notice this low right here, I’m going to zoom in right here, you guys can see it. Notice how this low would not able to go lower.
Notice how the price could not go lower than what it previously did. That means that the bulls were coming in the buyers were coming in and buying the price back up, buying this back up to here.
And then when I came back down, it tried to retest this area here and then the buyer bought back up again. And every time it came down to here, the buyers would buy it up down here and somebody would step in and buy it.
Short-term wise, there are a lot of buyers here in this area that’s and why are people buying here? Why are people buying here? If the market has been falling, why would someone step in to buy at the low 600s here?
There’s much reason one reason is that they missed it. They missed the move, there’s a lot of people that missed the move on the way up, on the run-up and they’ve been sitting there and they’ve been waiting and waiting and waiting to have an opportunity. And the people who missed over here, they’re saying to themselves mentally that “Hey, if the price ever come down to 600, I’ll buy in.”
That’s what it did, it came down near 600 and they jumped on and buy in. We don’t have to know the reason why they buy. The buyers had it in their mind that when the price comes to this level they going to buy.
The other reason that we have here remembers the people who shorted here are taking profits, the people who shorted here who did not take profits here, who did not take profits here see prices going up and now going sideways and they get tired of waiting, now they finally covered their short position and buy out.
So that’s it, guys. I don’t have much else to update, my support and resistance lines are still where they are at because the price is not come down and broken or anything.
Let’s just take a look at this. Like I always say, there are three things that price can do, it can either go up, it can either go down or it can go sideways and right now it seems like it’s going sideways.
So if we’re looking to take a long position on this. Remember that we have a… this green trend line is a long-term daily trend. If we’re looking to take an intermediate or long-term long position, I would wait until price breaks the high of this. It would have to break the high of this right here.
In other words, I would wait until it’s above this area right here before I take it long. So that would make it above somewhere around 775, it would have to break above that and come up if I take it long and if I take a long right there I would put my stop somewhere below here.
Let’s say that price goes up from here and continue to go up. It would put my stop somewhere here. If I want a tight stop or no more than here, no more than below here, like if the price comes up to here, you took it long and it comes back down and then breaks the low of this area right here, I would definitely get out. That long is long gone.
If you were looking to take this short on the other hand, then come up here when it hits this trend line right here. That’s where you would take it short if the price goes sideways and hits here, your short would be right there.
If price happens to come up to here, then you would take it short here and your stop would be above this red resistance area. You stop would be up here regardless if you go short here or you go short here. Now you need to make that decision ahead of time before the price gets there.
If I make up my mind that I’m going to go short when it hit this trend line, I’m going to go short and put my stop above here regardless of what the market is doing at that time. I’m not going to make up my mind and say that I’m going to go short at this trend line and then when the price gets here, I hesitate.
I see people on this chat roll right here making opinions and all that. That’s not the time to make a decision to get in or out of a trade, that is not a good time at all, the time right now…
I think that Abraham Lincoln, one of the greatest presidents in America, I think he said that if he had eight or nine hours to chop down a tree he would spend the bulk of that time sharpening the axe.
And then in China, we had Confucius say that the time to sharpen the axe is before you go into the woods.
The time to decide whether to get in or out of a trade is before it happen while the market is going sideways and the market is calm, that’s when you make a decision when to get into the trade because that’s when your emotions are not spiked, your emotions are at a neutral point, it’s not up.
Let me let me let me say this, let me let me demonstrate to you guys when I’m talking about.
Here is your flatline, your emotion, you never want to make a decision in your trading when it’s down like when you’re depressed, you break up with a girlfriend, you have a death in the family, anything like that. When it’s down here, you never ever want to make a decision on your trade.
At the same time when your emotions are positive up here. Let’s say that you just met a new girl and you got a date with Britney Spears or you know, whatever, you win the lottery, never ever make a decision when your emotions are up here or when your emotions are down here, the time to make a decision is when your emotions are flat line.
When it’s neutral, this is what I call neutral, right here is what I call positive emotion and here is what I call a negative emotion, never ever, ever make a decision to give in or out of a trade when your emotions are negative and never, ever make a decision to trade when your emotions are positive, you make it when your emotions are neutral.
Now while you have no trades on, the market is going sideways, that’s when you make a decision. This is let me just go through the thought process with you.
So my goal is to go short there. And my stop loss is up here. And my exit, my first profits target is down here and I’m doing this, real quick just so you guys see the thought process of a trader. That would be my second profit target down here probably somewhere right here.
So I take it short right here, enter where the green line is at. My stop loss is up here. My first profit target is here, either take them off the table or move my stops and then the second profit target is here.
Now if I take a measurement before I take that trade, it has to make sense to me. That means I’m going to risk that much … remember guys I don’t like crunching numbers, so I like to be visual.
So when I take a look at this I ask myself is there enough potential reward here for the amount of risk that I take, the red box represents the amount of risk that I have to incur and the green box represents the number of gains the reward that I have that’s available.
If I hit here, then that’s my reward if it comes down to here, the reward’s even greater. At the first target, there is enough to where it can warrant me taking it, in other words, there’s enough profit here, there’s enough potential reward.
Remember trading is all about probability and potential. There’s enough potential here that it’s it’s worth it.
On the other hand, if I decide that you know what, I’m long-term, I’m bullish on Bitcoin because of its profound technology, then what I would do is I would take it long after it broke the high of this right here. I will take it long. Then I would set my stop. It’s either going to be…
See this red part right here, it’s going to sideways and then it’s going to come up. I would put my stop right below that. I would put my stop right below that area.
So my first exit would be like somewhere like right here and then I would enter where the green line is at. My stop loss is here and then my potential reward will be here.
And my second potential reward would be here. If we take a look at this, you’ll notice that they “Hey wait a minute the amount of reward that’s available is not that significantly greater than the risk that I’m taking here”.
So that means that when the price comes up above here. It’s going to hit here and it’s going to bounce around and then it’s going to shoot back up. That means that in order for me to take this long trade, there are two things I have to do, either I have to reduce the size of my position meaning that instead of trading one Bitcoin, I might cut it down to trading just one millibit or one centibit, either way, you have to do the math.
The second profit targeted be up to here. For sure when the price comes up to here even before it reaches new highs. It has fought through this resistance level before it can go up to new or highs so there’s no point in sitting through that.
If you are a short term trader, you might as well take profits here, wait until the battle between the buyers and seller are done and then retest it and it shoots back up, that’s when you would get back in.
Those are the thought process that you have to go through in some form or fashion before you take a trade. And you do that while the market is calm, you don’t do that when the market is jumping.
Here’s a good warning here, you see this chat roll here, see how it’s not moving, when this chat roll is not moving, that’s when you make a decision to enter or exit the market, when that chat roll is moving at a hundred miles an hour, that is not the best time to make a decision to get in or out of a trade.
Whenever I watch the chat roll here and I see guys talking about should I get in the should I get out, that lets me know immediately that they are the amateur trader, they are nervous novices.
Because a professional trader and experience trader never ever make the decision to get in or out when his emotions are down here in the negative zone and up here in the positives zone. A good trader makes the decision to trade when his emotions are neutral and flatline and I will go ahead and end this episode here. And I hope that this has helped you guys quite a bit.
One of the guys, Fabu, on trading view chat right here. He suggested that I put up a Bitcoin donation address at the bottom of the video so that people can donate to it. So I went ahead and put a donation address down here at the bottom of this video.
If you want to donate to me you know for making these videos, I would greatly appreciate that any amount is okay. What’s more important to me is when people donate to me, that’s just feedback to me that you guys want to see more of these videos.
To me that’s what I use it for, I don’t necessarily use donations to get rich off of it. I have other streams of income. But even if you send just one Satoshi or one millibit. The number of people that make the contributions and donation is what’s important because that lets me know there are actually people out there that watch these videos and benefit from it and that will encourage me to make more.
There’s no point making videos if nobody watches it and nobody benefits from it.
And when you do make a donation, in the Bitcoin the message box, I think you could include a message in there, let me know your comments, let me know what you want to see.
The reason why I made this about the time frames is that when I was on the trading view chat, I notice that was a very common question. I get asked all the time is “What time frame to use?”
And this same applies to the Euro as well guys, many of you guys know that I trade the currencies also, I do more trading in the Forex market than I do in the cryptocurrency market. Meaning that I do more short term trading in the Forex market, I take more intermediate and long term trade in the cryptocurrency market.
Because there are so many disadvantages in trading the cryptocurrency that I want to make sure that I understand what’s going on before I start making more and more trade with it.
I hope this video has helped you guys down and let me know what your thoughts are and let me know if there anything that I missed about answering about time frames, leave it in the comments below either on my YouTube channel or on the PrisonOrFreedom.com blog and I’ll see you guys in the next episode.