Short Term Trading: The Fastest Way To Make Profit in Trading…!!

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Short term Trading

Traders use various types of trading techniques to make a profit in the stock market. Some traders take long trades and while others take the short-term trades. If buying and holding of stocks are more than a year, then it is categorized as long-term trades. But if the buying and holding of the stocks are less than a year, then it is categorized as short-term trades. This type of trading comes with the potential for easy profit, but it comes with risk too. For instance, a low price value stock may not rise in value as expected.   

The working mechanism of short-term trading: 

The short-term trading focuses on the price action of the securities. The trading style attempts to make a profit by price movement, rather than long term fundamentals of the asset. Traders lookout for the key information such as market volatility, new economic data, company earning and political events before making a trade. It is a part of active trading and requires active strategies. Short term trading seems lucrative but involves a lot of risk. It can last for a few seconds to months. To book a profit, one needs to develop strategies. Let’s look at the type of strategies required before making any call in a short-term trading. There are mainly four types of popular short-term trading strategy:    

  • Momentum Trading 
  • Range Trading 
  • Breakout Trading  
  • Reversal Trading 

Momentum Trading: 

Momentum trading involves buying and selling of assets based upon the strength of a recent trend. If there is enough force behind a price move, it will continue in the same direction. If an asset price reaches a higher price, it usually attracts more attention from traders and investors, which pushes the price further higher. This will continue until a large number of sellers enter the market. If there are enough sellers in the market, the momentum changes direction. The best way to determine the movement is through the moving averages. It can help to determine whether it will move upward or downward.   

Range Trading: 

It is mainly a trading strategy, whereby a trader identifies overbought and oversold securities mainly support and resistance. A trading range occurs when a market moves consistently between two prices or levels for a definite period. Traders need to identify the range between which trade happens.   

Breakout Trading :  

It is one of the most important strategies, where a trader enters a trend as early as possible and wait for the price to break out of range. The strategy is commonly used by the short-term traders who subscribe to day trading or swing trading. The trader will seek to identify a point, where there is a change in the market sentiment which could indicate the volatility and start of a new trend.   

Reversal Trading: 

The reversal trading strategy is based upon identifying when a current trend is going to change direction. The change in direction can happen in either of them. There are mainly two types of trend i.e. bullish and bearish trend. A bullish reversal happens when the market is at the bottom of the downward trend and could end up as uptrend. A bearish reversal indicates that the market is at the top of an upward trend and could become a downtrend. Fibonacci retracement tool is the most used tool used to confirm, whether the market surpasses known as retracement level.   

Let’s look at the things to be taken into mind, before making any short-term trade: 

  1. Execution and price technology: Before executing any short-term trade, an investor must look upon the speed of execution that is needed to enter and exit positions quickly. In short term trading, the speed of trading can be the difference between profit and loss.  
  2. Slippage: Slippage is one of the most important things to be taken into consideration. The price at which order is executed differs from the price that one requested it. It generally happens in the fast-moving markets.

Short term trading requires certain technical knowledge. But those who master those techniques have higher chances of a successful trade. Success in short term trading requires guts, perseverance and a disciplined mind to achieve it.  

*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing 

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