Short-Term Trading Strategies that Work

Trading in the stock market without a proper strategy is like battling a war without a proper line of attack. There are unlimited numbers of trading strategies that traders use as per the different market conditions and their risk-bearing capability. You can use also the strategy that suits your trading style, time horizon and fund availability.

However, the question right here is everyone looking for a strategy that works and has the potential to give some returns in a short time period. In fact, there is no strategy that suits everyone and guarantees to give returns on every trade. However short-term trading strategies provide better trading opportunities to different types of traders.

What is Short-Term Trading?

In layman term, short-term trading is simply entering into a contract to buy or sell an underlying security for a short period of time, usually for days or few weeks. You can enter into the trade position to earn profits within a few days, and it can take time to move the stock as per your expected levels.

Though, short-term trading can be unpredictable and risky if the market remains volatile, but compared to intraday you get more time for stock price movement. If you trade with the right strategy it will work for you and can give good returns in the short-term. Hence, we brought here short-term trading strategies that work most of the time in the stock market.

5 Short-Term Trading Strategies that Work:

#1 Intraday or Day trading

For experienced traders who have mastered price action, technical patterns, and market psychology, day trading is one of the most popular trading strategies that experienced traders use often. In day trading or intraday trading, you have to buy and sell the stock or any underlying security for a single day. This means at the end of the trading session on that day, you can square off your trade position either your earn profit or incur a loss.

Day trading could be risky, especially for new traders, but if bet on the right stock, at the right time at the right levels, it will work and can give you a profitable journey. And to pick the right stock you need to use the best technical indicator for intraday while considering various other factors like market trend, sector trend and market sentiments.

#2 Trend-based Trading

Trade the trend or trend is your friend, is another trading strategy that you can follow for short-term trading. The trader needs to be aware of broader trend of the market/ stock/ indices and trader accordingly. Suppose, the trend is bullish and a short pullback can be considered as buy the dip to profit from the swing trade.

Trend based trading can be done on indices level also. Three are season when particular indices outperform/ underperform. In time of weakness in market, market participant turns to defensive stocks like consumer durable, defence stocks, etc. In growth environment investor tries to trade on infra stocks. You can use various indicators to find the trending stocks suitable for the short-term trading strategy.

#3 News-based Trading

If there is certain news in the market like political changes, economic data, industrial data or the central bank’s monetary policy that can affect the stock market movement. You can create a short-term trading strategy on such news or events, it works most of the time.

But make sure your estimates or prediction regarding the news outcome and its impact on the stock, market, so that based on your forecasting you can create a long or short position in the market. Many times market discounts such news or events in advance, hence creating the position accordingly and booking the profit when news comes in the market.

#4 Momentum Based Trading

Momentum-based trading is another popular trading strategy that works many times for short-term trading. If any stock market index not moving for many days, and suddenly there is significant movement, you can create a trade position based on its momentum.

There could be anything moving this stock like its quarterly results, corporate actions, breakout or surge in the volume of trade etc. because of that it is moving now. Though momentum could be for a short period for short-term trading it will work for you and can give returns.

#5 Swing-basedTrading

For short-term traders, swing trading is one of the best trading strategies that can work in a few days or weeks. In swing trading, you can trade in upper and lower trading ranges with the opportunity to buy or sell the stock when the price swings between this range.

In swing trading, you can create long positions when prices are low and sell when the price reaches a higher price. Compared to intraday, in swing trading, you can hold your trade position for long days but less stress compared to delivery-based positional trading.

Best Short-term Trading Strategies for Volatile Markets

Most of the trading strategies work when the market moves in a single direction. And when the market is volatile there are only a few trading strategies that can work. For short-term trading in a volatile market, you have to trade in the future and options, where you will get various trading option strategies that work even when the market is volatile.

You can buy puts or short calls or can choose to trade with short straddles or strangles and iron condors option strategies as per your perception towards the market. Apart from there are multiple other combinations of option strategies that work in a volatile market. But understanding and trading with such a complex trading strategy, apart from applying the best and most popular technical indicators you also need knowledge and experience in the option market.

Best Technical Indicators for Short-Term Trading

For day trading or short-term trading, you need to perform the technical analysis and without technical indicators, it is not possible to do that. Hence you should know which technical indicator or tool is effective and helpful in finding the best stocks for intraday trading or short-term trading. Although there are unlimited indicators only a few of them are suitable for short-term trading.

For short-term trading, you can use RSI,Moving Averages, MACD,Bollinger Bands or apply the Fibonacci Retracement to make your trading strategy work as per your expectations. Though many times indicators and strategies fail trading without a strategy is like playing the blind game in the casino, where you bet your money totally on your luck.