Introduction to Short-Term Trading: How to Determine Buy and Sell Timing in Short-Term Trading

Short-term trading, commonly known as day trading, can offer high returns but also comes with risks. Short-term trading orders can be completed within a few minutes, or positions may be held for several days.

The most important strategy for short-term traders is to identify potential trading opportunities and manage risks. In this article, we will introduce the secrets of short-term trading.

What is short-term trading?

Short-term trading (day trading) refers to a market strategy that involves buying and selling within a range of a few days to a few weeks.

Short-term trading is highly speculative and generally involves significant risk. In short-term trading, the fundamentals of companies are not emphasized, and speculative stocks are often the focus of trading. The aim of short-term trading is not to profit from the growth of companies, but to follow the movements of main capital and earn short-term speculative profits.

The "win rate" is the key to making profits in short-term trading. Investors need to calmly analyze the probability of profit. Many experienced short-term traders use backtesting software to validate their trading strategies.

Where are the short-term trading opportunities?

The main opportunities for short-term trading are in markets with significant price movements, long durations, and relatively easy to discern trends. Such trading opportunities primarily appear during key phases of trending markets.

Short-term trading secondary opportunities are markets that occur frequently, even though the market fluctuations are not that large. Traders can continuously accumulate profits by grasping the rhythm of fluctuations. Typically, such trading opportunities exist within a wide range of box areas.

Short-term trading carries high-risk opportunities, which are extremely volatile market fluctuations. Due to the impact of news and events, stock prices can be excessively bought or sold. However, if an investor's technical skills are insufficient, they may not be able to grasp that rhythm, leading to taking high risks or incurring losses.

How to Identify Potential Trading Timing in Short-Term Trading

Identifying the "appropriate" buy and sell points means that traders can distinguish between potential trading situations that are favorable or unfavorable for themselves.

In many cases, investors are swayed by the news in front of them and believe that by closely watching the news, they can accurately grasp market movements. In reality, by the time financial news is seen, the market has already reacted. Therefore, traders need to do their basic preparation work and seize trading opportunities at the right timing.

Step 1: Observing the Moving Average Line

The moving average is one of the technical indicators commonly used in the market. The moving average is an indicator that helps predict price trends and identify dynamic support and resistance levels. The moving average is referred to as a trend indicator, indicating an upward trend if the price is above the moving average and a downward trend if it is below.

Step 2: Understanding Overall Cycles and Patterns

Phase 1: Range Market

When there is no trend in the market, currency pairs are often confined to a range. They fluctuate between predictable intraday highs and lows. Buyers attempt to push the price up but are quickly met by sellers' resistance. When the price falls below a certain range, the balancing force brings the price back to equilibrium.

The movement in a range market usually ends with a breakout, which becomes the second phase of the cycle. The longer the duration of the range market, the larger the breakout tends to be. Similarly, some market participants may attempt to create false breakouts. Traders can check the trading volume to confirm whether the price discovery process is proceeding as expected and avoid being deceived by such market manipulations.

Phase 2: Breakout

Phase 2 is the breakout. This is the phase where the market breaks through inertia, meaning that the fluctuations within this phase can turn into a clear upward or downward trend.

Sharp Increase: If there is a dramatic change in the base currency, this movement may indicate a sharp increase. This situation occurs relatively quickly and then the price stabilizes. Traders have the option to either enter early or continue to observe.

Formation of Highs and Lows: If a breakout is not triggered by a clear change in fundamentals, the price will not show a single movement. In this case, the market's rise faces resistance. At each point, it reaches a higher price. Furthermore, each low is also higher than the previous low. Therefore, the price may decline against the midpoint, but it will rise against the original price.

It is important to note that in this phase, the moving average price is rising.

Phase 3: Decline

The third phase is when the price peaks and begins to revert to previous levels. In this phase, different situations may arise depending on the market momentum.

Sharp Decline: If the fundamentals of the currency pair change again, the market will react quickly. Prices may drop several percent instantaneously. Short-selling positions may be built immediately or not built at all.

Wavy decline: The price may fall within a series of highs and lows. This means that the price does not decline linearly, but faces resistance at each level.

Phase 4: Uncertainty

After the buying and selling movements are completed, the market faces uncertainty. The cycle needs to begin again, but very few people can accurately predict future courses of action. This phase is characterized by significant volatility. Even with the use of technical indicators, predictions are difficult, so it is usually recommended for investors to stay away from the market during this phase.

Step 3: Understanding Market Trends

Trends can be long-term, short-term, upward, downward, or even sideways. When the trend is negative, it is generally common to short sell. Conversely, when the trend is rising, it is usual to take a buy position. If the overall market trend is unfavorable to investors, the probability of trading success decreases. It is important not to go against the trend and to focus on trend following.

Step 4: Aligning the Mindset for short-term Trading

Many people consider the root cause of losses to be a "mindset problem." Why is it that success is easier in demo trading, but losses continue in real trading? The mindset is key to whether or not you can ultimately execute trades. To have the right trading mindset, you need to work on the following points:

• Completely control emotions
• Based on appropriate fund management
• Understand losses correctly
• Pay attention to stop-loss, prioritize risk management, and consider profits as secondary.

How to Choose Stocks Suitable for Short-term Trading

The secret to short-term trading lies in "increasing the turnover rate to expand profits." Therefore, what is important is not whether the fundamentals of the stock are good or bad. This is because, in short-term trading, both buying and selling are possible.

The stocks to look for as targets for short-term trading should have the following characteristics:

• "Has buzz": Topics and news that are attracting attention in the market are influencing that asset.
• "High trading volume": Buyers and sellers are active, making it easy to enter and exit positions.
• "Stock prices are highly volatile": Price fluctuations are intense, providing more profit opportunities.

To find such stocks, it is usually appropriate to look during periods of high market volatility, when companies are announcing earnings reports, or when important news is being released.

The next point to note is that short-term trading is not necessarily related to a company's long-term fundamentals. This is because even companies with long-term potential can experience adjustments after a rise or fall into a sideways market in the short term. Therefore, in investing, it is important to place more emphasis on "technical analysis" and to identify the stock's "resistance" and "support" levels to engage in range trading or to continue buying or selling in one direction until reaching the next resistance or support line.

Short-term Trading Strategy Techniques

The most important thing in short-term trading is to recognize the current trends of stocks and determine the right timing to buy. Therefore, it is essential to prioritize strategy when engaging in short-term trading.

1. When the stock price has started to rise, if there is still not a significant increase and the moving average system is diverging and forming a bullish trend, with a daily trading turnover rate of about 3%, when encountering such stocks, wait for the timing and decisively buy when the stock price adjusts to the 5-day moving average;

2. In a situation where the overall market is in a decline, if some stocks are rising more than 5% against the trend and trading volume is increasing at the same time, these stocks can also represent potential opportunities for short-term trading. Depending on the situation, you can decisively buy at the end of the day or during the stock price adjustment the following day. This is precisely why "stocks that do not fall when they should will inevitably rise."

3. If certain assets show a rapid increase followed by a sharp decline and trading volume decreases, caution is necessary. When the decline exceeds half of the previous increase, you can immediately enter to target a short-term rebound.

4. The technical patterns of monthly and weekly stock charts are both at bottom levels, and if there is an accumulation of volume at this bottom level, the 3-day moving average line rises with volume, and the volume increases on the 60-minute chart forming a golden cross. Furthermore, if the market depth information shows a continuous increase in volume and large buy orders are frequently appearing, this indicates that the hot sector is in the early stages of movement, allowing for the timing of short-term entry.

5. If you make a mistake in judgment and buy at the bottom price, resulting in a continued decline in stock prices, you should immediately cut your losses. On the other hand, if the stock price rises to the target level, you should immediately secure your profits, and it is important not to be greedy.

Regardless of whether many people recognize it, the market always looks ahead and reacts to current events. In other words, all the factors we know—fiscal policy, the global economy, domestic and international political environments, and others—affect the market. In such a situation, technical analysis becomes particularly important.

Conclusion

Short-term trading is a common trading strategy, and the goal of short-term traders is to achieve relatively small profits while increasing trading frequency. Among various trading forms, CFDs (Contracts for Difference) have become an ideal short-term trading tool due to advantages such as low costs, zero commissions, and the ability to buy and sell at any time.

However, it is necessary to recognize the following points: