How To Master The Art Of Short-Term Trading

In short-term exchanging, stocks are for the most part purchased and held for a couple of minutes or hours (or days). It uses the market's unpredictability to receive most extreme rewards
How To Master The Art Of Short-Term Trading

By Ravi Singhal

The conventional way to deal with putting resources into the stock market includes, "Purchase and Hold", wherein stocks would be purchased and held for weeks, months, or even years. However, with the appearance of financial news services and access to smart data on financial and market pointers, the alternative methodology of short-term exchanging is additionally becoming well known.

In short-term exchanging, stocks are for the most part purchased and held for a couple of minutes or hours (or days). It uses the market's unpredictability to receive most extreme rewards. Quarterly organization profit, loan cost variances, monetary standpoint, and growth determining, major political and international occasions, consolidation and procurement news, and so forth are basic data that can vigorously impact transient exchanging exercises.

Here are some popular ways that can help in mastering the art of short-term trading:

Momentum Trading: This is a common approach to short-term trading and is based on the simple premise that if there is a positive or inclining momentum around a stock, it will continue to rise. If the investors are betting on a stock option, they will continue to do so, thereby enabling the prices to move upwards. Likewise, vice versa also holds.

One of the commonly used data in momentum trading is Moving Averages (MA), which implies average values of stock over a specific period- 15, 20, 30, 60, 90, 120, 200 days, etc. If MA demonstrates upward-moving trends, then it is a good proposition to look into. Meanwhile, if the idea is “To Short”, then a declining average is a prudent indicator.

Range Trading: Markets that are range-bound and trade along the “Support and Resistance” lines could be a lucrative option for short-term traders. Such a fluctuating market renders quick returns. (Support is a level, where prices after going downwards for a while stop declining and start moving upward. Resistance is a level wherein it stops climbing up and starts going down.)

Traders can open the stock at a level of support when the prices start to trend upward. They can ride the wave until the resistance and will close there to maximize profits. Meanwhile, if the objective is “To Short”, then the trader will open at a known level of resistance and leverage a declining market. They will close, once the market will hit the level of support.

It should be noted that Support and Resistance are generally not exact figures but estimations. To learn more about the Support & Resistance ranges, one can track the historical data and try identifying the pattern.

Breakout Trading: The Breakout Trading approach is another popular approach that mostly resonates with short-term trading practice.  In this, a trader will enter the market whenever there is a sudden shift in trends. Whenever volatility is triggered, a trader will enter exactly at the point to ride the wave and maximize the returns. In Breakthrough trading, the key parameter scrutinized is MFI (Money Flow Index) which determines the amount of capital inflow and outflow into an asset time over a period of time.

Short-term trading can be a good option to earn money. Many individuals do short-term trading for livelihood. However, to succeed in short-term trading, it is important to have in-depth insights into how the market and economy function. Knowledge of fundamental analysis, technical analysis, chart analysis, and historical data analysis can further help traders. While fundamental analysis connotes the quarterly results and company financials, technical analysis monitors historical price trends of stocks, the volume of trading, etc to give a more accurate picture. 

Meanwhile, it is also suggested to have adequate capital. Short-term trading is not a risk-averse approach. Having adequate capital can help the trader to mitigate emotional and financial turmoil in case of a loss and make them better equipped to deal with contingencies. 

The author is Vice Chairman at GCL Securities. Views expressed are personal.

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