While short-term trading is lucrative, it is not without risks. With a short-term trade, you can attain profits in minutes or over several days. You can succeed as a short-term trader only when you understand the risk and rewards. Attaining success does not end with identifying the right stocks. You must also know how to protect yourself from losses.
Time Commitments in Short-Term Trading
As a short-term trader, you will need to make a daily time commitment towards your trade. Remember that the first few hours of market opening are suitable for capitalizing on large price moves. Consider trading within an hour or two after the market opens for the day. Also, it is essential to spend a substantial review time at the end of each day’s trade.
Roughly put, consider committing to 15 hours every week on the lower end and stretch up to 40 hours for the week. Did you know that even the best stock tips provider in India recommends you to spend a couple of hours every week on researching? This is especially true for those investors with plenty of capital and looking for multiple trading opportunities.
However, if you are ‘’set and forget’’ type of investor, exhaustive research may not be necessary. Check on your investment every few days or months or when you are planning to make another purchase.
Skills and Personality Traits
Apart from serious time commitment towards researching on short-term strategies, you must also commit to their effective implementation. Consult the best stock tips provider in India, and they will advise you against deviating from an investment plan or strategy. This is because there is much more than money at stake.
Your investment capital has strong emotions attached that demand an emotional discipline. Use pre-formulated and pre-tested strategies to identify trade triggers. Do not let emotions determine the entry or exit point in a trade. This is considered to be an undisciplined principle and may lead to substantial losses.
While short-term trading does give you instant profits, it does demand patience. Typically, short-term traders take on many trades during a day. Yet, it is essential to wait for the buy and sell triggers to occur.
Monitoring even the minute price movements can help you attain large profits. With short-term trading, you don’t have to be bookish-smart. It is when you get an opportunity to convert your bookish knowledge into a usable one. Distil everything you know into a few simple concepts that are easy to follow. Learning is always encouraged in trading.
So, make it a practice until you have mastered the art of entering, exiting, and risk management. Put your knowledge to test with historical data to see the fruitfulness of your understanding. It is always recommended to have a flexible trading strategy. Use this principle as you gain experience and reap higher profits.
Working Strategies for Short-Term Investment
Analyzing the basic chart patterns will help you identify better short-term trading opportunities. Here, investors often assume that price action is in accordance with the psychology and nature of the market participants. On a closer analysis, you will realize that price actions come back with the same shape, termed as patterns. Trading using pattern recognition is a powerful tool to leverage in technical analysis.
This pattern is constructed using two converging trend lines. While triangles are continuous, you can find them as reversal patterns, as well. Triangles are found in different kinds like ascending, descending, and symmetrical. Being a continuation pattern, you get an ascending triangle during an upward trend or a bullish sign. Descending triangle, on the other hand, signifies a bearish or a downward trend. Prices generally accelerate when they come out of the triangle.
This pattern appears when there is a reversal trend. Prices here move in the reverse direction against the previous trend. There are two different versions of a head-and-shoulder model. If you come across a chart with the head and shoulder resting on the top, then it signifies an imminent drop in the price of an asset. This generally appears during the prime point in a bullish trend.
The head-and-shoulders bottom is another trend to watch out. This appears during a bearish trend and is also termed as inverse head-and-shoulder. It signifies a rise in prices. However, there is a common construction between these two patterns – a shoulder, head, another shoulder, and a neckline.
Flag and Pennant
These are continuous patterns with the flag resembling a rectangle. The pennant is very closely shaped into a triangle. Prices often evolve with a triangle. This is against the primary trend and within two trend lines. The rectangle is formed with support and resistance levels.
Prices rise within this limit and later heads back to the main direction. Pennants adhere to the principles and rules of flags, but they are symmetrical triangles. You can predict a strong rise or fall in prices before they correct within the pennant pattern.
Short-term trading is one of the popular trading techniques that give you instant gratification. Yet, it pays to understand the trading principles and strategies that help you fare better at stock markets.