Short-term Trading Strategies

What Is Short-term Trading And What Are The Best Strategies?

In the stock market, short-term trading, also known as active trading, is based on price action within a short time frame and is considered a more speculative way of trading. Traders, mainly retail and institutional, focus on small price movements and short-term trends to take and exit positions. Short-term trades can be executed for days to a couple of weeks, or just for seconds or minutes. 

For online trading, in the short time frame, a trader should be able to determine where the market is heading in the near course. A short-term trader can approach the market with numerous trading strategies, including intraday, and swing trading. 

Short term trading requires speedy trades that attempt to profit. Therefore, short term traders ensure that they choose the right trading platform supporting high-frequency trade executions. When individuals open their online demat and trading accounts with a stockbroker, they need to specify beforehand the trading style they want to follow for suitable trading services. 

Short-term Trading Strategies 

Among various short term trading strategies, best three are as follows:

1. Scalping

Scalping is an extremely short-term strategy, often used for the forex and commodities trading, as these markets can experience quick price movements each day. Scalpers enter and exit positions within seconds or minutes. They execute hundreds of orders in a trading session, attempting significant profit. However, the level of risk is very high here as most trades in the forex market are based on leveraged positions. No matter how small the position is, the scalper may have to bear heavy losses due to high-frequency pf trades.

The scalping strategy is focused on charting and technical analysis rather than fundamental analysis. Scalpers ignore short-term market trends also, as they do not have time to materialise them. 

2. Swing Strategy 

Trading based on swing strategy is a short to medium-term trading that includes technical as well as fundamental analysis. This strategy is widely used for stocks. Swing traders hold a position for several days or weeks. It is the longest one among short-term strategies as there is no specific timeframe that limits it. Swing traders can follow the trend that lasts longer than a couple of weeks. 

Swing traders capitalize on high and low stock price swings within the overall price movement to find out the profit potential. They explore and predict the direction of stock movement just before taking the position and then ride the highs and lows. They can exit as soon as they find a change in the pattern.

Economic indicators and events are more significant for swing traders as those can affect the financial markets and thus positions any time throughout the trade.

3. Day Trading

Day traders can trade multiple instruments in any asset class throughout the day; therefore, it is the most popular strategy among short-term traders. Intraday traders/day traders have to close their positions within the same trading session before the market closes. 

How to do intraday trading

Before investing in intraday trading, you need to know, how to do intraday trading. Day trading is a balanced short-term strategy, unlike scalping and swing trading. Day traders can use 5-minutes or hourly charts to analyse recent trends intended to buy or sell a financial instrument within the same day. Day traders carry out a lower number of transactions as compared to scalpers and swing traders. 

Day traders can utilize the time to analyze price charts in order to assess their trades compared to scalpers; thus, it involves slightly reduced risk than scalpers. They can identify the previous day’s highs and lows to create an effective day trading strategy. 

Popular short-term markets are commodities, forex, stocks and the choice of trading strategy depends on your personal preferences.

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