Best Short Term Trading Strategies
The best short term trading strategies are rooted in data and indicators that help you make the most informed decisions possible.
Keep track of moving averages. A moving average is the average price of a stock during a given time period. You can specify the time frame, but looking at the moving average will tell you whether the stock is trending up or down.
Understand the overall trading cycles. Many will be surprised to learn that almost all markets have cycles that are roughly followed year in and year out. Stocks generally have gains between April and November, while maintaining their positions from May to October. While this behavior isn’t always the case, knowing this can help you have a more fleshed out decision when doing short term trading strategies.
Use the RSI and Stochastic oscillator to determine whether a situation is overbought or oversold. These indicators help traders know whether it is an optimal move to enter the market, or if they should continue to wait. If the RSI is sub-30 than the market might start trading upward. If the RSI is above 70, than the prices may reverse and begin to trend downwards.
Before making any decision, be sure to analyze the support and resistance levels. Short term trading is a risky endeavor, and knowing the area where the asset will have trouble moving below can help you lower your risk. Knowing the resistance levels can help you have a better understanding of how much you can potentially gain on a trade. If the resistance is set at a price much higher than the current price, it may be an indicator that you could capitalize on gains before traders begin to exit their long positions.
10 SHORT TERM TRADING TIPS
Operate With a Plan of Attack: If you aim for a hair you are more likely to miss by a hair. It’s not enough to just want to make money, you need to have an idea of roughly when you want to buy and when you want to sell. Money, especially when it comes to short term trading, can be lost in a very short time frame.
Regulate Risk: Trading is an inherently risky venture and it is important to have a disciplined mindset when trading. You can only bet what you are fully willing to lose. If you ever find yourself executing riskier and riskier trades, you should take a step back and understand that millions are not made overnight.
Use The Correct Tools: The number of traders increases everyday. The successful traders are the ones who are able to use the tools and resources at their disposal to stay ahead. The platform that you are trading on can make a huge difference depending on the charts and resources that they provide. There are also several tools out there that allow you to test your trading prowess on historical data before actually wagering your hard earned dollars on the market. Lastly, this is especially important for short term trading, you should look to have a quick internet connection that does not cut out during prime trading hours.
Restrict your Emotions: Winning big on a trade is an amazing feeling, but it’s important to remember to stay humble and lead with facts. Emotional traders will always lose versus traders who only trade based on indicators and facts. Whether you win big or lose big, your trading strategy should not falter.
Continue to Research: Markets are ever changing and that should be great news for you. The evolution of the markets rewards the traders who are vigilant and willing to learn. As we said earlier, the emotional traders who execute a few successful trades may begin to believe that they have a grasp on trading and begin to get sloppy. That is one of the worst mistakes that you could make. Every day should be split between learning more about the market, and then applying that knowledge. Even veteran traders who have been trading for years need to stay up to date with the news, refresh their knowledge of certain indicators, and even experiment with new trading strategies that are either emerging or underutilized.
Resist the Temptation: When it comes to entering and exiting the market, it’s very important to not be greedy. As you see the market spike upwards, it’s easy to want to wait just a bit longer to fully capitalize on the gains. The problem with this strategy is there is never a perfect exit or a perfect entry. You need to have a strict plan for when you are comfortable realizing your gains or cutting your losses. Do you see a pattern among these short term trading tips? The disciplined traders will always perform better than the traders who are trading based on emotion.
It’s Not About the Money: The money will come if the strategy is sound. The end goal of trading should always be to make the most amount of money, but your trading mindset should not be focusing on the money but rather the strategy. Focusing only on the money can make you do reckless things like staying in longer than you should or jumping into trades that you haven’t fully researched.
Be Accountable: If you lost money today, you were the reason that you lost money. If you made a smart trade, congratulations, you beat the market. There are a sizable amount of traders who execute a bad trade and proclaim that the market was just out to get them.
This is a toxic mindset that will not only limit your growth as a trader but also as a person. If you got burned, you need to take a deep dive into why that trade did not work. If you place the blame on the market, you lose the valuable opportunity to grow as a trader. Why did the trade go wrong? How can we prevent this from happening again? Is there something that I could have done differently? What have I learned?
The converse is also true. If you consecutively execute short term trades that were profitable, you probably have a trading strategy that is working well for you. You need to celebrate your successes and also analyze why these trading strategies are working for you.
Could your trading indicators be optimized even further? How can you turn your red days into green days with this strategy? If you think of yourself as a product, you need to be continually fine tuning yourself to become a better trader than you were yesterday. The only way to do so is to have a clear understanding of what type of trader you currently are and who you hope to become.
Track Everything: We live in a day and age where data is critical for making optimal decisions. Trading is no different. Every week you should look back at your record of previous trades that you executed and fix glaring errors in your trading strategy.
Software stores the history of your trades can be found with a simple Google search. From your trade history you can glean certain aspects about yourself that you need to fix. Perhaps you are losing money from staying in a position too long. Perhaps you are losing money from not staying in a position long enough.
No online manual will help you with your personal shortcomings, and it is up to you to document and learn from your mistakes. If you are willing to spend hours everyday looking at charts of the market, you should be comfortable spending an hour a week analyzing the charts of your own trading decisions.
Quit Before You’re Forced To: If you follow all of these short term trading tips, it is possible that you could still have a very red day. In fact, it’s possible that you could have a very red week. There is no avoiding losses even if you are the best trader in the world.
However, if it is possibly because you are trading irrationally due to the losses or operating a faulty trading strategy you need to quit. Sometimes the best move in the game of trading is not to make a move at all. If you are noticing that your trading skills are declining, take a step back and reevaluate your plan. Pause and reevaluate yourself. There is no shame in taking a day or a week off. Trading is not for everyone, in some cases, it may be good to quit altogether if you find yourself frustrated from the stresses and losses.
Whatever decision you come to, it’s important to know that quitting is always an option and not one that is inherently wrong.
With all of these tips implemented, you have a much better shot at not only being a competent trader, but a trader that continually improves upon his skillset. Your trading strategy should be equal parts fluid and static. As always, best of luck and let us know if you think we missed any crucial tips for Short Term Trading!