Mastering Short Term Trading

How can you profit from a small short term price movement? The answer lies in acing short term trading or active trading. Short term trading is where you enter and exit the investment in a brief period of say days to a couple of weeks. You enter these trades to take advantage of short term movement in prices. Short term trading can help you make short term profits if you know how to time the market well and it can also be risky if your bets go wrong. What should you know to master short term trading? Herein, we also share some short term trading ideas to surf the high-speed world of short term trading.

A significant way short term trading differs from traditional buy and hold approach is, here the focus is only on price action or how the prices move instead of focusing on the long term outlook on the stock. In short term trading, speed is everything and traders must make sure they have the right technology to support high-frequency execution of opening or exiting positions. In short term trading, hasty execution or lack of it can keep traders from losing or making profits. This is called slippage.

Types of short term traders

In mastering short-term trading, you must first know what kind of short term trading do you want to do. There are three types of short traders- scalpers, day traders and swing traders.

Scalpers typically enter and exit a trade within seconds to minutes. Here the aim is to make many profits or cut losses rapidly from a more significant number of quick trades. Scalping can be risky as the window of making profits is very little.

Read More About Scalping Trading

Day traders enter and exit a trade in a day.

Swing traders try to identify profit opportunities within a more substantial price movement. This happens over the medium term, from where swing traders study the trends to profit.

These are some of the popular short-term trading strategies to spot winners and know good entry or exit points.

  1. Momentum trading

Here the idea is if the price is falling in the near term, chances are it will continue to fall since more traders would join the trend. Similarly, if the price is rising in the near term, more short sellers will swarm around the level and bring the price further down. In momentum trading, traders, spot these trends just as they begin to emerge or as momentum gains around specific price movement. Here traders rely on moving averages to spot chunks of price movements to make profits. If moving averages are sloping upwards, it signals a potential price rise. Momentum trading is more about finding these rises or falls and not the top or bottom levels.

  1. Range trading

This is a simple one, where short-term traders look for price levels between support and resistance to enter and exit. Even as prices move, sometimes there are levels on the upper and lower end between which stock prices move unless pushed beyond those levels by triggers like a news event or price shocks. The prices may rise or fall to touch these levels, but usually, it takes a more potent trigger to get them to move beyond these levels. The upper price level is called the resistance level since the prices resist moving past the said level. The lower level is called the support level, since the prices find support from falling any lower, at the support levels.

Range trading does not interest long-term traders since the price movement is limited. But short-term traders profit from the limited spikes in prices. A range trader looking for a long position would usually enter at the support level, buying low, and place limit order (an order to sell or buy at set prices or better) at the resistance level. Limit orders are also a great way to manage the risks of short-term trading.

Range traders use various tools and indices like the Relative Strength Index and the Stochastic Oscillator to anticipate levels where prices will breach the range. The Relative Strength Index compares how strong or weak a particular stock is in comparison to other stocks. Stochastic Oscillator is a momentum indicator that charts the journey of a specific stock price from its closing price through its rates at various points of time.

  1. Breakout trading

Usually practiced by day traders and swing traders, the aim here is to beat the market in estimating levels where the prices will break out of the range, and almost lead the trend as it were. Here traders keenly look for points of change where the market sentiment switches and are rapid to enter these positions and surf the rise or fall and exit the position.

Breakout traders look at volumes like the volume-weighted moving averages to identify the sweet spots. The belief being, when volumes start to rise or fall, it could potentially signal a breakout from the range. The traders here use limit order system, so they do not miss the opportunity to sell or buy when there is a price breakout when traders were not on their screens.

  1. Reversal trading

Reversal trading is all about knowing exactly when the markets have peaked or reached the bottom. After any of these points, the trend is likely to reverse. For example, a bullish reversal indicates the market sentiment could not get more cynical, and from this point, it will turn to rise upwards. A bearish reversal indicates a level when the markets have peaked, and stocks are overvalued. At that point, the prices will begin declining. Short term traders, more or, reversal traders have to take contrarian views and be ahead of the curve to benefit the most from trend reversals.

A few general tips to remember for traders who are interested in short term trading include:

  1. Keep an eye on the moving averages. This gives you an average of stock prices over a given period. This will help you spot trends and in time and with practice, help you forecast trends also.
  2. It is essential to study market cycles. Not everything about trading in stocks is unpredictable. There are trends and cycles that markets have followed. For example, specific months see more volatility and bullish bouts than other months.
  3. Try to be at the top of market trends. When the market trend is negative, stick to conservative price action. When the market trend is positive, you can go long.


It is essential to know that most of the news or development you find in media would be already factored into the stock prices or price changes. All these steps above can help you stay ahead of the game, take advantage of a price change, and spot changes in market sentiment or potential price reversal.