As the name implies, short-term trading strategies are strategies applied over a short time frame, from a few seconds to a few days. They can be potentially beneficial if you follow an effective trading plan, but they can also be risky if you don’t know what you’re doing and do not protect your trading capital. That’s why we’ve gathered the most important information you should be aware of before starting short-term trading.
Why should you choose short-term trading over long-term investing?
While long-term investors look for steady returns over time with a “buy-and-hold” type of strategy, those interested in short-term trading are traders who focus on making quick profits with very short-term price fluctuations. That’s why trading is often compared to a speculative method, compared to traditional investment methods.
Short-term trading: best markets and strategies
Short-term trading can be used on a variety of markets, but it is especially popular with index and Forex trading because they are liquid and have high trading volume, which means that it’s fast and easy to enter/exit the market at the expected price.
Scalping, day trading, and swing trading are among the most widely used short-term strategies. While the first two strategies involve closing out all positions before the end of the trading day, swing trading is a less aggressive strategy.
Scalping is the most active strategy, it involves opening/closing positions in a matter of seconds or minutes. The goal is to take advantage of tiny price fluctuations to accumulate profits over many trades throughout the day. Traders using scalping usually have significant knowledge of technical analysis, as they use the price action to decide when to enter/exit the market.
Day trading is less aggressive than scalping because day traders keep their trades open from a few minutes to a few hours. They are therefore targeting wider market movements throughout the day. The most important aspect of this trading technique is to always close your positions before the end of the trading session to avoid overnight fees.
Swing trading could be considered a short to medium-term trading strategy, as swing traders hold their positions for a few days or weeks to profit from larger price movements. Unlike scalping or day trading, swing traders usually look at both technical and fundamental analysis to make their decision.
Short-term trading: Best financial products
Usually involves using derivative financial products, like Contracts For Difference (CFD), that will allow you to trade on margin without owning the underlying asset and to use leverage effect to start with relatively small trading capital and maximize your market exposure. These products also allow you to take advantage of rising and falling markets depending on your preferred scenario.
Is short-term trading for you?
Not everyone is able to put up with the pressure of trading, as markets are unpredictable and can be quite volatile sometimes. Still, this trading technique is a great way to capitalize on very small price fluctuations if you have sound knowledge of how trading works, if you understand the risks, and if you’re available to take advantage of real-time trading opportunities. Choosing which short-term trading strategy to use mostly depends on your trader profile, your goals, your capital, your risk tolerance, as well as your availability to trade.