Short Term Trading Strategies That Work
Short-term trading is quite difficult to master. But, if you can cut the noise and get rich quick, there are big wins to be had. Usually, active management significantly underperforms passive management. By “active management”, I mean short-term trading. On the other hand, “passive management” means long-term investment.
Short-term trading has its place, however. If you start with a low amount, you can get gains under your belt. But, it usually takes at least a few months to get there. This is where a lot of people get burned out and give up. Or, they just can’t continue because they’ve exhausted themselves financially.
You can avoid this by following my tips below. But it also helps a lot to use a system that works well. Because we all know that if you don’t have the right tools, you’re going to do a bad job. Check out some of the short term trading strategies that work.
Short Term Trading Strategies
Here are some short term trading strategies you may not have heard of. Some of them work better than others. But, it also depends on your skills.
Momentum trading is a short-term trading strategy in which you jump on a stock. And that stock is picking up speed. It is directed upwards. And, if you can get on that bandwagon while the irons are still hot, you could easily make some gains.
The thing to watch out for with this strategy is knowing when to bail out. If you go out too late, you could have losses on your hands.
Range trading is a little different. This is when you can see that the stock has been trading between two prices consistently for some time. So imagine there is a stock that fluctuates between $10 and $20. And that’s what he’s been doing for about a year. It shows no signs of stopping and there isn’t much news around this company or the industry.
So it’s probably going to keep fluctuating like that. A trader might wait for a chance to buy around $10. Then they would wait for the price to reach close to $20. And that’s when they would redeem. It offers a chance for quick and predictable wins.
For this, however, it can be difficult to tell what effect the market will have on a stock. There are endless factors that contribute to the behavior of each stock. And this behavior can change at any time.
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I often try to find out if an action has “exploded”. When using this short-term trading strategy, you are looking at the long-term momentum of the chart. This is very effective for both bearish and bullish charts.
Look at recent price spikes. Then make a mental or physical line that connects the main peaks. If the latest uptrend crosses this line? It is likely that he will begin to turn into a bull. It also goes both ways. You can use it to predict a bear.
And it helps to look at the long and short term elements of the chart and the price. If you want a more detailed explanation, take a look here.
Best Short Term Trading Strategy I’ve Used That Works
All of these strategies work. And each of them has its place and time. Each stock requires its own unique trading strategy. So, I don’t recommend looking for stocks that match the strategy. I recommend big business hunting. Then decide which strategy is best.
I’ll tell you, though. I tend to favor the escape method. But not alone. I like to investigate the company to see where it is heading. Are there any news surrounding the company? What about the industry?
Remember you are buying a piece of a living, breathing thing. Imagine that you are making a long-term investment. Then you will choose businesses that you can profit from repeatedly.
Short Term Trading Tips
- Treat all your transactions as if you were making a long-term investment. This means you need to investigate the company. Treat it like buying a quality business. Imagine that you are going to buy the whole company. You will want to ensure that all systems and leadership are in place.
- Make a plan for your short term trading. Write down when you are going to buy and how long you are going to last. And write down when you are going to sell. No matter what, stick to what you wrote. If you don’t, you will invite the emotion inside. And it’s the emotion that will make your belly round.
- Determine what is the best time of day to trade. This can be different for each day of the week. But one thing to check is the power hour.
What is short term trading called?
- Scalping: This is very short term trading. This happens between minutes or hours.
- Today’s trades: A short-term trading strategy that leaves a little more time. This can happen within a day or between a few days.
- Swing Trading: This is a longer term day trading strategy. Swing trading is when a buy and a sell happen within days or months.
- Taxes on short-term transactions: Robinhood is a great app to start trading. Because you don’t have to buy whole shares. And you don’t have to pay any trading fees. Moreover, they track all your transactions. Including date, amount and type of transaction. This is very handy when it comes to tax time. Otherwise, you need to keep track of it all. The IRS also taxes short-term trading strategies very differently from long-term investments.
What should novice short-term traders do?
If you stick to a small amount of money, you have a better chance of success. Because in the beginning you will lose money. Even with the best short-term trading strategies. It’s not a question of if, it’s a question of when. And while you learn the ropes, you aim to make money. But, you should expect to lose some.
Let’s be honest, you should expect to lose a lot.
So when you’re describing a smaller amount, you’re protecting yourself from, well, yourself. Let’s say I figure I’m going to use $1,000 to start. My rule would be that I can’t use any more money until I make a profit. I would write it, sign it and stick to it.
And no matter what, I wouldn’t allow myself to use more money than $1,000. To protect myself from burnout, I would start with $500 of that. So the first thing I would do would be to find a good stock to trade.
Then I would make a plan for how long to hold the trade. I would put around $5 to $10. Then, when my plan calls for it, I would take it down. If I made money, so much the better. If I lost money, I would understand why. Then I would reevaluate this company or find another one.
I would continue to do so and gradually increase my trade amounts. But only if I make a profit. So I would learn and turn $1,000 into so much more.
Vanessa Adelman graduated with an interdisciplinary degree. She specialized in entrepreneurship, painting, music and cinema. Soon after, she received a writing mentorship from Mark Morgan Ford. Then she got her AWAI verification. Today, Vanessa is a freelancer in the financial direct response industry. She has been investing since 2016. In her free time, she enjoys books about money and wealth. She loves being with her boyfriend, hunting, fishing and having outdoor adventures.