What is short-term trading? Short-term trading refers to a trade in which an investor buys and sells a stock in a short time frame to earn the difference in price. Short-term traders try to capture the ups and downs of stock prices. Positions are typically held for one to six days, but some can last up to several weeks if the trade is still profitable. Short-term traders look for trading opportunities using a variety of technical indicators to determine the pattern, direction, and potential short-term changes in a trend. Examples of short-term trading
Chart Guide.
A - Buy Point B - Stop Loss Point C - Price Forecast (Sell Point) D - Fibonacci Technical Analysis Short-term trading can be done using a variety of strategies. In this example we show a short-term trade based on trading signals generated by the Fibonacci retracement theory. The three most important points in a stock chart are used in this example: the buy point (A), the sell point (C) and the stop loss point (B). Any short-term trading system should include these three key elements.
Stop loss levels and sell points do not have to be kept at set price levels as they will be triggered when a specific technical correction occurs in the stock market, which will depend on the short-term trading strategy you are using. The expected time frame for a short-term trade in this stock is approximately one week. Only by understanding the typical time frame for a short term trade to unfold can you effectively monitor your trades and maximize your profit potential.
5 Short-term Stock Trading Strategies
Summarized below are five short-term trading strategies you can use to spot trading opportunities and manage your trades from start to finish. Apply these short-term trading techniques to the stocks that interest you most to find possible buy points. 1 - Fibonacci retracement line
Fibonacci retracement lines can be used to help traders identify
support and resistance levels and thus identify possible reversal levels on a stock chart. Stocks tend to retrace a certain percentage of their previous trend and then reverse again, so plotting horizontal lines of the classic Fibonacci ratios (23.6%, 38.2% and 61.8%) on a stock chart can reveal potential reversal levels. Although not conforming to the laws of the Fibonacci series, traders usually focus on the 50% level line as well, as the stock market tends to reverse after retracing half of its previous move.
In a downtrend, if the stock retraces to the 61.8% retracement
level (which acts as a resistance level) and bounces, short-term traders can begin to sell positions with the aim of realizing a profit on closing the position when the price falls to the 23.6% Fibonacci line and bounces back. This example is illustrated in the first image. 2 - Support and Resistance Triggers
Support and resistance levels are the cornerstones of technical
analysis and you can build a successful short-term stock trading strategy around them.
Support refers to a price level or area on a chart that is below the
current market price, when buying power is strong enough to overcome selling pressure. As a result, the price stops falling and rallies again. A short-term stock trader would consider buying on a support level bounce and place a stop below the support level.
Resistance levels are the opposite of support levels. A resistance
line indicates a price level or area above the current market price where selling pressure may outweigh buying pressure, causing the price to fall into a downtrend. In this case, a short-term trader can sell a position after the price bounces off the resistance level to place a stop above the resistance line. A key thing to remember when incorporating support and resistance into a short-term trading system is that when price breaks through support or support resistance, they switch roles - what was once support becomes resistance, and vice versa. 2 - Support and Resistance Triggers 3 - Channel trading
When using a short-term trading strategy, you need to identify
stocks that show a strong trend and are trading within a channel. If you have a bearish trend channel plotted on a stock chart, consider establishing a sell position when the price bounces off the top line of the channel. When trading short-term using channels, it is important to follow the trend. Therefore, in a downtrend, only sell positions should be sought - unless the price breaks out of the channel, moves upwards and starts to reverse and rise.. 4 - 34 and 55 Day SMA
Another of the most commonly used short-term trading
techniques is the use of Simple Moving Averages (SMAs.) SMAs smooth out price data by averaging prices over a specific time (length) in the past and calculating a continuously updated average price.
For example, a 34-day SMA takes the daily closing prices for the past 34 days, adds them up, and divides by 34 to arrive at a new average price for each day. Each average is connected to the next to form a smoothed line, which helps to eliminate "volatility" on a stock chart. The length used (34 in this case) can be applied to any chart interval, from one minute to weekly.
Short-term SMAs react faster to price changes than long-term
SMAs. You can use the 34-day and 55-day SMA short-term trading systems to apply these two lengths of SAS to a stock chart. The short-term SMA (34) crossing upwards through the long-term SMA (55) shows an uptrend and is a buy signal.
A downward crossing of the short-term SMA across the long-term
SMA indicates a downtrend and is a sell signal. 4 - 34 and 55 Day SMA 5 - MACD crossover
The Smooth Moving Average of Difference and Dissimilarity
(MACD) crossover short-term trading system provides a simple method of identifying short-term trading opportunities. It is one of the most commonly used short-term trading indicators for determining trend direction and reversals. MACD consists of two moving averages (the MACD line and the signal line), and when these two lines cross, a buy or sell signal is generated. If the MACD line crosses the signal line upwards, it shows a bullish trend and is a buy signal.
If the MACD line crosses the signal line downward, a bearish
trend is possible, a sell signal. Short-term stock traders will wait for these two lines to cross again, releasing a reverse trade signal and then exit the market.
The MACD line fluctuates around the zero line, and trading signals are also generated when the MACD crosses over the zero line (a buy signal) or goes below the zero line (a sell signal). 5 - MACD crossover Summary
All of these strategies can be applied to your trading to help you
identify trading opportunities in the markets that interest you most. They should work on every time frame, but as a stock trader I suggest you stick to the daily chart as it will have the least amount of noise.
When you blend 2 or more of these, they are called confluences,
and the more confluences you can analyze that fit your bias, the higher the probability that your trade will result in profit. Make sure you use stop losses when trading short-term, as your analysis should always include a strong zone of support or resistance that should not be broken.
