Short-term trading techniques involve a combination of a trader’s skill, intuition and experience. Traders make money by taking short-term positions in securities after recognizing opportunities in the bull and bear markets.
Mastering short-term trading requires certain attributes of the trader.
The following factors are fundamental to a short-term trading strategy to ensure that your losses are minimized and gains maximized.
- Risk control
The risk involved in short-term trading is proportional to the returns, ie high risk and high reward. However, prudent risk management strategies should also be applied to short-term trading in order for the trader to control the risk and achieve the goal of trading in the form of capital gains.
Some of the risk control measures that short-term traders must master include a limit order or a stop order.
A limited order is an instruction given in advance on the prices at which securities can be traded (bought / sold). It is used to maximize a trader’s portfolio by ensuring that the trader takes advantage of securities price points whether the price falls or rises by triggering a purchase order or a sale restriction.
On the other hand, a stop order is an instruction given to a broker to the extent that an investor may suffer losses on a particular portfolio. Therefore, a stop order reduces investor risk by reducing losses before or at a certain price point.
- Technical skills
Markets are characterized by repeated conditions after certain periods or during certain events. A detailed analysis of the data collected in the market extensively shows the patterns in the market that are becoming predictable. Mastering short-term trading requires the ability to identify the exact time of occurrence and the conditions / events that lead to the occurrence of the intended cycle for exploitation by the trader.
The technical analysis should also be meticulous enough to identify trends in the performance of the monitored security over a very short period, including a day or a week. Having such an ability puts you in a better position to be a successful trader. The identified trends it relies on in making decisions should have a clear bottom line and breakthrough as a sign of proper technical analysis.
Another technical tool that a trader must master is the ability to read different market data presented in different formats. For example, a short-term trader may use the moving average of a particular security to determine the best time at which the price falls to make a call.
- Time / experience / intuition
Short-term trading is characterized by holding a position for a very short time, sometimes seconds, and releasing the position to make a capital gain. This requires mastery in recognizing market opportunities driven by prevailing market conditions, especially market sentiment. Exploiting market volatility, however, is a risky strategy because unforeseen events can disrupt the expected outcome of an established market opportunity.
Basically, trading is a strategy for making quick capital gains in the securities market.