If you consider financial markets as a part-time activity to gain extra revenue, short-term trading strategies seem to be the most suitable. The technique's name speaks for itself. It means that a trader benefits form smaller price movements within a shorter period that may vary from several seconds to a couple of days.
This speculative trading style has become very popular with both beginners and pros. It lets you trade multiple assets at the same time, which means more positions to open. Unlike longer-term strategies, this one does not require in-depth analytics to consider historical trend movement although market analysis is still necessary.
Despite the fact, short-term strategies seem to be easy to apply, they are not recommended for newbies. Are they that risky? What are the fundamental concepts? Let's find it out.
What Is a Short-Term Strategy and How it Works?
Also known as active trading, short-term trading strategies consider positions lasting from a few seconds to several days. It appeared to be a more engaging alternative for traders who do not want to spend weeks or months waiting for the price to move.
Here are some crucial factors that make it simpler to understand how the techniques work:
- Short-term trading is used with a focus on price action. In other words, you will hardly need to consider historical data or other asset's fundamentals. The idea is to win on prices moving quickly in the financial market.
- The concept requires focusing on key economic info, news, or releases to define market volatility and predict the price action. This is where you may need to examine political events, economical situation, company's earnings, etcю
- Short-term trading strategies are mainly based on speculative concepts. In other words, all deals are handled with CFDs, which means that you do not have to owe the asset physically. You can borrow it from a broker, sell it at the most profitable price, and pocket the difference.
To make the most of this particular trading style, you need to find a trusted trading platform with suitable market conditions. The best bet is to opt for brokers that provide assets at their real current cost. It will let you benefit during the crisis and make substantial wealth on the falling market prices.
Now, it is high time we defined the key instruments you will need to get started with a short-term trading strategy.
Best Short-Term Strategy Tips
If you think this style suits you fine you will need to follow several vital steps before diving deep into the financial market:
- Decide what type of short-term trader applies to you.
- Examine various markets and pick the one that suits you the most.
- Select a short-term strategy type.
- Try it for free without any risk using the MTrading DEMO account.
- Work out the winning approach and open the LIVE account to start trading.
Let's have a detailed look at each of the above-mentioned issues.
Short-Term Trader Type
So, the first thing you need to do is to define what type of short-term trader you mostly refer to. There are three major options:
- Scalpers – traders are aimed at making smaller but more frequent profits. They look for small price changes and open positions that never last longer than a couple of minutes (sometimes even seconds).
- Day Traders – these guys traditionally open positions that last for a single day. They trade assets mainly to avoid overnight costs and make the most of rapid deals processed throughout a day.
- Swing Traders – they seek a chance to trade assets within a larger price move. Positions may last from several days to weeks. They look for a trend and try to win on the price increase or dropdown compared to the overall price movement.
After you have figured out what type of trader you are, you need to select the most suitable asset to trade. This is where you will need to explore and examine different markets. They are the same as for any other type of trading strategy. You may choose from Commodities, Currency Pairs, Shares & Stocks, Forex, Indices, etc.
Forex is the most popular market to use short-term strategies. It is popular for high volatility. Besides, it is available round the clock 5 days a week.
Define the Strategy Type
You should note that a trading strategy is not a magic formula that guarantees success. It is mainly a methodology based on particular data and market actions. Picking the suitable strategy will define the best time to enter the market. It outlines when you are going to trade.
There are 4 baseline short-term strategy types:
- Momentum Trading – the strategy considers selling assets based on their recent trends. For example, if you notice the price going down over the last few days, short traders will try their best to keep pushing the price down.
- Range Trading – another popular short-term strategy when a trader uses support and resistance lines to make a profit. As a rule, it applies to longer-term tactics when the asset is positioned on the known level and eventually hits the resistance line.
- Breakout Trading – the idea is very simple: all you need is to enter a trend as soon as you can. Then you need to wait for the market price to break out of the range.
- Reversal Trading – with this strategy, you need to forecast the trend move and decide when it is going to change the direction. It can be applied either to the price mobbing up or down.
The best idea to define, which strategy type of your cup of tea, is to open a free MTrading demo account. It ensures risk-free practice. You will be able to work out a winning short-term trading strategy that works without losing your cash.
Once you are ready to enter the real financial market, open the LIVE account, and start your successful trading.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.