Who is a short-term trader? You may be asking this important question right now. If you are an investor, and you take a position that can be viable for a few seconds or several days, we say you are a short-term trader. Traditional traders believe in the popular buy-and-hold tactic, but here, you do not need to hold your stock for several weeks or more.
Short-term trading, also known as active trading, is presently popular as it can ensure that you reap a lot from quick changes in the value of your stock. For you to succeed, you have to identify and use the most important signals. Here are the ones that you need to forget.
When you study the moving averages of a particular stock, you get to know its price over a given period. Depending on the nature of your trade, you can consider the cost for a period of between 15-and-200 days. In most cases, this is enough to help you see the trend.
If you find that the moving average is steadily slopping upward, you can ignore investing in the stock. However, if it is either declining or flattening out, consider it the best short-term trading opportunity.
Since markets operate in circles, you can study the past cycles and forecast what may happen in the future. There are times of the year when some stocks are cheaper than others do. At other moments, they are more expensive.
As a short-term trader, if you know this trading signal, you can tell when to buy and sell your stocks. Use it to determine the best times when you can enter into short positions. Of course, you can use it to enter into long positions as well, if you need.
Market trends can determine whether you need to consider shorting. Use risk control tools to be sure you are making the right decision. To achieve your goal, resort to sell stops and buy stops to know when you can no longer purchase or keep holding your stock.
The best practice is to set these limits within between 10 and 15 percent of the amount at which you bought your stock. This is particularly true for short-term traders that do not want to expose themselves to the risk of incurring unmanageable lose.
There are several patterns that you can rely on to determine the viability of your investment. No two of them are created equal. Therefore, you can use more than one to predict price movements accurately.
For example, when you notice that your stop is beginning to top out, you can use Head and Shoulders. Others that can help you are Triangles, Double Tops, and Double Bottoms.
Use these short-term trading tactics to mitigate risks. Most stocks are volatile, and you need to use them to ensure you remain safe at all times. None of these signals is perfect since the overall strategy is speculative. As such, you can achieve a lot within a short time if you are creative and avoid taking too many risks.
Overall, it would help if you always did your homework before you start investing. That has the potential of helping you to choose the most appropriate trading indicators.