Best Short Term Trading Strategies: Pros and Cons

Short Term trading

Short term trading significantly grabbed the attraction of new-age traders. It seems quite lucrative, but one should be aware of the potential risks also. It is the trading technique to cash out on smaller market movements. Short term trading is all about speculation and place bets accordingly. Traders tend towards high volatile assets to gain maximum via this trading style. High volatile assets can involve Forex, stocks, commodities and more.

A short-term trade can be of as little as a few seconds or numerous days. A short term trader should check the risk/reward ratio carefully. Traders must know that a short-term investment strategy is not like a well-served dish on the plate. They have to sharpen their skills and knowledge to trade with technical indicators. Short term trading is not just intuitive, but it is required with certain trading strategies also.  

What is Short Term Trading?

The short term trading strategy is implemented by capturing profits from small price movements. Traders heavily rely on price movements rather than fundamentals of long-term investments. If you are looking to get your hands on short-term trading, you must know how to identify the best short-term opportunities and mitigate the potential risks. The trading style is popular among young investors because it gives you instant gratification. 

Short term trading depends on various factors such as political events, change in position in the company and various economic factors because these factors drive volatility. More volatility means more opportunities for short-term traders. In short term trading, buying or selling the underlying assets is not necessary as this trading style is based on speculation. Therefore, one can trade CFDs on underlying assets including stocks, cryptocurrencies, currency pairs, commodities and more without owning them.

Short term trading is one of the best ways to earn profit from the quick rise and fall of the market. Therefore, it is very important to understand that there is not just speculation, but trading strategies are also required to make a decent amount of money through short term trading. 

Is short-term right for me?

Yes, short-term trading is just a traditional hold-buy-sell strategy to gain regular income. But it is quite ambiguous for a beginner how to start short-term trading. So here is the step by step process to start your short-term trading journey. 

  1. Decide the strategy or trading style that suits your budget and risk appetite. There are mainly three types of short-term trading such as scalping, day trading and swing trading. We will discuss these three categories later. 
  2. Choose the market. You can trade short-term almost in every market, whether the stock market, cryptocurrencies, indices, foreign exchange, commodities, futures or metals. Trading CFDs on these assets without owning them is convenient enough to adapt to short-term trading.
  3. Practice short-term trading with a free 101invesing demo account. 101investing offers a free demo account to its clients by providing a decent amount of virtual money (fake capital). So you can easily place trades that you want. But keep it as real as you will do in an actual scenario. Learn and adapt the concept of short-term trading with 101investing now. 
  4. Even professional traders can use the demo account of the 101investing to try out new short term trading strategies. It offers tight spreads and flexible leverage for both novices and professional investors.  
  5. Open your live account with 101investing and start short-term trading with negligible costs.  

Short Term trading pros and cons

Pros

  • Short term trading is highly profitable for traders due to the effect of compounding. This is the major advantage of short-term trading. In addition, it will help you to scale your profit at higher levels. 
  • Short term trading opens the world of opportunities for a trader to gain and generate a regular income quickly.
  • Suppose you gained an amount in the first half of your trading day. You can reinvest it in the second half to make more profits. And you can keep reinvesting until you find the market conditions are favourable. But never forget to use the technical indicators properly. 
  • There is no need for high capital as you can make small profits through trading in a larger volume of stocks. So all Small profits come together to create a larger profit.
  • Short-term trading eliminates the risks of holding positions overnight. However, in some forms of short term trading, traders often hold positions overnight.  

Cons

  • Higher risks are involved due to the volatility. Of course, volatility in the market can be profitable, but it has another side too. When there is a massive dip in the asset’s price, retail investor accounts lose money rapidly. 
  • Short-term trading is indeed lucrative, but it requires speculation with greater knowledge and skills. In addition, there is a lot of effort needed to avoid risks to manage your capital properly.
  • One needs to put enough time while Short-term trading as you have to sticky o technical indicators that will tell you about market trends. Learn and practice using technical indicators through the demo account as suggested above.
  • Technical analysis is the key to success in short-term trading. It is not a disadvantage, but the only motive behind discussing it here is that most traders ignore the thorough technical analysis while trading short-term.   

Types of short Term Trading

There are mainly three types of short term trading. 

Scalping

Scalping is the trading strategy that is used to make a profit on small price movements. Traders who participate in this form of trading are known as scalpers. Scalpers generally open their positions only for a few seconds or minutes. Thus, it comes under the shortest trading styles. 

Various technical indicators can help in scalping. The various strategies are stochastic oscillator strategy, moving average strategy, relative strength index (RSI) strategy and parabolic SAR indicator strategy. 

Day Trading

Day trading is also a form of short term trading. In day trading, traders can open their position for a whole trading day. Then, at the end of the day, they must square off their position before the market closes. This technique is used to hold the position for a few hours and gain from small price changes. 

One can easily identify the potential entry and exit points and direction of the market trends through various technical indicators and trading signals. For example, Fibonacci retracements, Japanese candlesticks, T-line charts, moving averages etc., these indicators are used for day trading.

One can use day trading as a conventional trading career to make a regular income. This is the best strategy to make money through short term trading. But it is essential to be careful of the underlying risks. For example, one can trade on CFDs without owning the stock and make a huge profit in day trading. This type of trading is considered one of the best short term trading strategies. 

If you are looking to gain higher returns through day trading, you can open your free account without the requirement of a minimum deposit in 101investing. 101investing provides world-class trading platforms for day traders, and they can learn from the free education material provided on the broker’s website. It will be quite easier for you to practice through the free demo account offered by the 101invsting. 

Swing Trading

Swing trading is the form of short term trading in which traders typically hold their positions for several days or even weeks. This is a well-known trading style to gain from the large moves of the market. Traders put heavy emphasis on technical indicators in swing trading. 

Usually, the price movements will show you the right time to open or close the position. And the indicators will also show you whether to open a long or short position. This is because there are no specific timeframes in swing trading, unlike scalping and day trading. 

Best stocks for short Term trading

When it comes to short-term trading, focusing on the best short-term stock investments is the popular opinion. Short-term traders always look for investing in highly volatile stocks for quick profits. It is quite easy to identify the stocks for long-term investment. But picking stocks for a short-term trading strategy is a tough nut to crack. So here are our top picks from short-term stocks to buy. 

Accel Entertainment (ACEL)

Accel entertainment was registered by the Illinois gaming board. It is a gaming terminal operator. ACEL is thriving as it provides the best service, installations and maintenance of gaming operators in Illinois. ACEL has increased by around 20% in the previous quarter. ACEL is well known in the gaming market as the best gaming service provider in Illinois. 

Currently, it is the best stock for short-term trading. However, recently, Accel Entertainment has been taught so many times in the news as it is presently offering sweet volatility, which is an excellent opportunity for higher potential returns for traders. 

IQvia Holdings (IQV)

IQvia is an American health care based multinational company. IQvia is one of the most current volatile stocks. High price variation in IQV has been noticed recently. It is best suitable for short-term traders. IQvia provides a wide range of services, including advanced analysis, clinical research services and technology solutions. 

During the recent times of Covid, the stock of IQvia has witnessed a significant movement in its price. This is because the company has added AI-based technologies to scale its medical information technology-related services. Today, IQvia is a robust stock for the short trading term. 

Simply Good Foods (SMPL)

Simply Good Food is a well known F&B (Food and Beverages) industry based company. The company offers a wide array of products, from nutritional bars to ready to drink shakes. The company operates under various subsidiaries, including Atkins Nutritionals holdings INC., Quest and Atkins Endulge Brand and more. 

Currently, SMPL is one best short-term stocks to buy because of its liquidity. The company’s business model is focused on how to eat in the right way plus how people can fix their eating habits. Simply Good Foods educate customers about their nutritional wealth. 

Microsoft (MSFT)

As we all know, Microsoft is a tech giant, a computer and information technology-based service provider. MSFT is a blue-chip stock listed on NASDAQ. The company’s stock has seen a high price movement recently. As a result, Wall Street experts tagged MSFT as a good stock for short-term traders.    

Walt Disney (DIS)

Walt Disney was an American entrepreneur who built an entertainment company in the early 1920s in California. Since 2019, the DIS stock has been one of the best options for short-term trading. The current share price of DIS is around 180 USD. 

In the future, it is also expected to see high volatility in price as the governments remove the lockdown across the globe. As a result, the theatres and entertainment could witness a massive surge in their businesses. 

Proctor and Gamble (PG)

Proctor and Gamble (P&G) is an American consumer goods multinational corporation. The company headquarter is situated in Cincinnati, Ohio. The current price of PG is around 145 USD. The company’s revenue rises to 24% in the fourth quarter. Therefore, it has also been a good opportunity for short-term traders. 

Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance is a pharmaceutical manufacturer based in Illinois. It is considered as a quite good international short-term stock to buy. WBA is listed on NASDAQ at the current price of 51.29 USD. 

Constellation Brands (STZ)

Constellation Brands is a liquor industry based company. It produces beers, wines and spirits and has the third-largest market share in major beer suppliers. The current stock price of STZ is around 212 USD. 

Final Words

Short term trading is lucrative enough but comes with greater risks. Above mentioned strategies are followed globally in short term trading. Our final advice is that you should furnish your skills for short-term trading as it requires a lot of practice. Your intuition plus the ability to understand and grasp the technical indicators and trading signals is exactly what you need to succeed in short-term trading. The first two preliminary steps in short-term trading are learning to use technical indicators and get familiar with trading platforms. 

Whether you are interested in scalping, day trading or cashing out from swing trading, 101investing provides you with the best favourable conditions to succeed in short-term trading.

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