Short-term trading can be quite lucrative, as long as its risks are appropriately managed. A short-term trade may last for a few minutes to even several days. As Kavan Choksi Japan says, to succeed in this approach, a trader must have a good understanding of the rewards and risks of each trade. There are several basic concepts that should be honed for successful short-term trading.
Kavan Choksi Japan marks a few basics of short-term trading
For all stock market traders, it becomes imperative to first recognize the “right” trade. It is common for investors to get caught up in the moment and believe that they shall be on top of what is happening in the markets, as long as they stay up-to-date with the news. However, very often, by the time a trader hears about a news, the markets are already reacting. Hence, to find the right trades at the right times, it is imperative to watch the moving averages. A moving average is the average price of a stock over a particular period of time, the most common time frames being 15, 20, 30, 50, 100, and 200 days. The overall idea is to show if a stock is trading downward or upward. The right stock shall typically have a moving average that is sloping upward. People looking for a good stock to short, must additionally try to find one with a moving average that is flattening out or declining.
Basically, if a trend is negative, short market traders should consider shorting and do very little buying. On the other hand, in case a trend is positive, they may want to buy with very little shorting. If the overall market trend is against the trader, the odds of having a successful trade go down.
Controlling risk is among the most vital aspects of successful short-term stock trading. As trading involves risk, traders must try their best to minimize risk and maximize return. This shall involve the smart use of sell stops or buy stops as protection from market reversals. A sell stop implies to an order to sell a stock as it reaches a certain predetermined price. As this price is reached, the stock becomes an order to sell at the market price. Buy stop is simply the opposite, and is used in a short position when the stock goes up to a specific price, at which point it becomes a buy order. Both of these methods are essentially designed to limit the risk of the traders.
Kavan Choksi Japan mentions that carrying out technical analysis before carrying out a trade is imperative for all modern stock market traders. This process involves evaluating and studying stocks or markets by making use of previous prices and patterns to predict what will happen in the future. There are a plethora of tools and techniques to be used for technical analysis, buy and sell indicators being among the most prominent ones.
There are many indicators that help identify the optimal times to buy or sell stocks. Among the most widely used are the Relative Strength Index (RSI) and the stochastic oscillator. The RSI measures the relative strength or weakness of a stock against other stocks in the market. Typically, an RSI reading of 70 suggests the stock might be reaching a peak, while a reading below 30 indicates it may be oversold. However, it is important to note that stocks can stay in overbought or oversold conditions for an extended period.
