What are the best short-term trading techniques, and when might you utilise them?

Buy low, sell high. In theory, the general essence of trading success is easy to understand, and the premise is simple enough to carry out when you find the right assets to invest in.

However, such a philosophy is, by its very nature, long term in view, and those adopting this trading approach may find themselves sitting on their hands for large passages of time.

short-term tradingThat’s fine for those who are seeking passive investments or who are happy to let the markets do their thing, but what about traders who want to take a more short-term approach?

The good news is that there are a number of trading strategies that you can employ that will enable you to dip into the markets for hours or even minutes at a time, hopefully closing out plenty of positions in the green throughout the day.

Here’s a quick look at some of the very best short-term trading techniques.

Scalping

There are no two ways about it, scalping is simple but effective and the ideal strategy for traders who are trialing new techniques to adopt.

The premise behind scalping is easy enough to grasp: you get into the market with a buy order, and then look to sell shortly afterwards at a profit.

Of course, this is easier said than done, but the idea behind scalping is that you can mitigate your risk and secure consistent small gains with careful planning and execution.

Scalping requires discipline, and is perhaps best used when you have some kind of automated software at your disposal – utilising stop/losses and ‘take profit’ tools is of paramount importance.

Scalping can be used to profit from most asset types, including stocks, forex and cryptocurrency, and it’s just one short-term technique that many professional traders deploy.

Day trading

Many trading brokerages charge overnight fees when you hold a position from the close of one session to the opening of the next.

In the grand scheme of things, these are fairly small charges, but nevertheless they soon add up, and that’s why some investors opt for a ‘day trading’ strategy.

As the name suggests, this involves getting in and out of the market before the close of the session, and it’s similar in style to scalping, though slightly wider parameters of profit and stop-loss are typically used.

Trading sessions all around the globe, but particularly those in the UK and the US, can be volatile, frenetic affairs, and there is ample opportunity for small regular profits to be made within that single-day window.

With day trading (and any short-term trading strategy), locking into the stocks of major brands is often the best idea as liquidity tends to be higher, ensuring that spreads are lower and that you can bank a more considerable profit rather than having to sell at a price higher than you want to.

Swing trading

Volatility is your friend with swing trading, where you can buy and sell within a specified window of opportunity.

Typically, this will involve the release of a good news story, or perhaps the public reveal of earnings statements, etc. One good example came when the entrepreneur Robert Sillerman announced that he was acquiring Gateway Industries back in 2011 – its share price rose by 20,000% in a single day!

So-called ‘black swan’ events like this are rare, but volatility and price swings are evidently daily in stocks, forex, cryptocurrencies and even commodities such as precious metals.

The object of swing trading is simple: to catch hold of the swing at just the right time to maximise your ROI. This can require technical analysis to determine points of entry and exit, but traders of all experience levels can enjoy the fruits of swing trading.

When to use short-term trading strategies

The first thing to say here is that when you are trying out new trading strategies for the first time, you really ought to do so via a demo account or through paper trading. Always minimise your exposure while learning the ropes!

Short-term trading is a risky business, and most investors reveal that these quick positions are found through intense analysis of moving averages, cycles and patterns, and other technical indicators that need to be mastered.

Once you understand charting and other techniques, knowing when to use a short-term trading strategy will become self-evident.

Applying scalping and swing or day trading is straightforward enough when your timing is right, and is also potentially very lucrative. However, you must understand some of the advanced analytical trends – RSI, oscillators, chart patterns, etc. – to fully immerse yourself in this world successfully.

So, go and hit the books!