The core principle of short-term trading: how to accurately grasp the timing of entry and exit

Short-term trading, commonly referred to as day trading or short-term speculation, refers to a trading pattern where investors complete entry and exit within a span of days to weeks. This trading approach offers considerable profit potential but also involves high risks—sometimes a single order can be closed within minutes, while other times positions are held for several days. For participants engaged in short-term trading, the core challenge lies in accurately identifying buy and sell opportunities while effectively managing risk exposure amid market volatility.

What is the essence of short-term trading?

Short-term trading refers to market operations with a trading cycle spanning from a few days to several weeks. This trading style is highly speculative, with risks often being prominent.

Unlike long-term investing, short-term traders do not focus on the fundamental quality of listed companies; sometimes they even target thematic stocks or obscure stocks. The goal is not to share in corporate growth profits but to track the hot money chasing certain stocks and to capture speculative gains through short-term price fluctuations.

“Win rate” is the decisive factor for short-term profitability. Successful short-term traders must analyze profit probabilities calmly and objectively. Many professional short-term traders use backtesting tools to repeatedly verify their strategies to improve their win rate.

Analysis of the opportunity structure in short-term trading

Main opportunity: Clear trend markets

High-quality short-term opportunities have three characteristics: large price fluctuations, sufficient duration, and easily identifiable trends. These opportunities mainly appear in clear trending markets and are the most ideal entry points for short-term traders. In an uptrend or downtrend, a well-defined trend provides clear expectations for trading.

Secondary opportunity: Regular oscillations within wide-ranging fluctuations

There are also other opportunities—markets with moderate volatility but higher frequency of oscillations. Traders who master rhythm can gradually accumulate profits by capturing these fluctuations. These opportunities are usually hidden within wide-ranging oscillation zones.

High-risk opportunity: Extreme volatility markets

At certain times, markets experience abnormal and intense fluctuations, often driven by major events or news, leading to overbought or oversold conditions. If traders lack technical skills to accurately gauge the rhythm, participating in such markets not only limits profit potential but also risks liquidation.

Practical framework for accurately identifying short-term buy and sell timing

Identifying the “correct” entry and exit points essentially enables traders to distinguish which opportunities are advantageous and which carry hidden risks.

Many investors fall into a cognitive misconception: they believe that paying more attention to financial news can accurately grasp market dynamics. In reality, by the time you see an important news, the market has already reacted. Therefore, professional traders must first do foundational work—master technical analysis methods—to capture trading opportunities at critical moments.

Step 1: Observe moving average systems

Moving averages are among the most widely used technical indicators in the market. They help traders forecast price trends and determine dynamic support and resistance levels. Moving averages are called “trend indicators” because: when prices are above the moving average, an upward trend is usually present; vice versa. By observing the arrangement of moving averages and the position of prices relative to them, traders can preliminarily judge the market state.

Step 2: Understand the four stages of market cycles

Stage 1: Range-bound oscillation

In a market without a clear trend, stock prices tend to be confined within a predictable range, fluctuating between daily highs and lows. Bulls attempt to push prices higher but are met with resistance from bears; when prices fall, balancing forces pull them back. This stage is characterized by repeated probing within a certain range.

Range movements usually end with a breakout. The longer the range persists, the larger the potential breakout. However, some market participants may create false breakouts to deceive retail traders. Traders can verify the authenticity of breakouts by monitoring volume changes to avoid being manipulated.

Stage 2: Breakout trend

This is the phase where the market breaks out of consolidation patterns. The accumulated volatility transforms into a clear upward or downward trend.

Unilateral rise: If there is a significant change in fundamentals, the stock price may surge straight up. Such movements often happen quickly, after which prices enter a relatively stable period. Traders can either pre-position or miss this opportunity.

Wave-like rise: If the breakout is not driven by a clear fundamental change, the stock price will exhibit wave-like movements. Each peak is higher than the previous, and each trough is higher than the previous. From an intermediate point, the price may experience slight pullbacks but remains in an overall upward trend. Moving averages will show a clear upward slope during this phase.

Stage 3: Pullback and correction

After reaching a peak, the stock price begins to retreat toward previous levels. The behavior during this phase varies depending on market momentum.

Rapid decline: If fundamentals deteriorate again, the market reacts swiftly, and prices may drop several percentage points in an instant. Short positions should be established quickly or avoided altogether.

Wave-like decline: The price may gradually fall through a series of highs and lows, rather than a straight drop. Each level may encounter resistance from long positions.

Stage 4: Uncertainty phase

After the forces of bulls and bears reach a stalemate, the market enters a confusing period. A new cycle is about to begin, but few can accurately predict the subsequent direction. This phase is characterized by increased volatility and difficulty in obtaining clear signals from technical indicators. It is generally advisable for traders to stay away from the market during this period.

Step 3: Grasp the overall market trend

Trends exist across multiple dimensions: long-term/short-term, upward/downward, or sideways. When the overall trend is upward, long positions are more logical; when the trend is downward, short opportunities are better. Most importantly, follow the trend—when the market trend opposes your trading direction, the probability of success drops significantly.

Mindset management in short-term trading

Many traders attribute losses to “poor mentality.” Indeed, it is often easier to succeed in simulated trading, but once real trading begins, losses tend to follow. Mindset is the key to whether trading strategies can be effectively executed.

To correct trading mindset, consider the following:

• Emotion control: Never let emotions dominate decisions
• Capital management: Good position sizing is a risk defense line
• Loss awareness: Properly understand the meaning and inevitability of losses
• Risk prioritization: Always prioritize risk over reward, adhere to stop-loss discipline

How to select suitable targets for short-term trading

The essence of short-term trading is to amplify returns by increasing turnover frequency, so fundamental quality is not the core consideration—both long and short positions are possible.

Suitable targets for short-term trading should have the following features:

• High thematic heat: Market attention is high, with hot topics or news catalysts
• Active trading: Buyers and sellers are active, with smooth entry and exit
• Significant price volatility: Adequate fluctuation range provides multiple profit opportunities

These targets often appear during increased market volatility or when companies have major events (financial reports, restructuring news, etc.).

At the same time, it must be clear: short-term trading has limited correlation with a company’s long-term fundamentals. Even high-quality companies with good long-term prospects may experience corrections after gains or enter prolonged consolidation phases. Therefore, short-term trading relies more on technical analysis—identifying resistance and support levels for range trading or riding a clear trend until hitting the next key level.

Practical strategies for short-term trading

Strategy 1: Buy on low breakouts

When a stock begins to rise with a modest increase, and the moving averages are diverging upward in a bullish alignment, with daily turnover around 3%, this indicates a potential opportunity. Wait for a pullback, and when the price retests the 5-day moving average, decisively buy.

Strategy 2: Contrarian strong entry

If the overall market is declining, but certain stocks rise more than 5% against the trend with significant volume, these stocks have strong short-term trading potential. You can buy at the close or on the next day’s pullback. This embodies the principle of “it shouldn’t fall, so it must rise.”

Strategy 3: Rebound scalp

After a stock experiences a rapid rise, if it suddenly drops sharply with noticeably reduced volume, be alert. When the decline reaches half of the previous rally’s gain, consider entering to catch a short-term rebound.

Strategy 4: Multi-timeframe resonance

When the monthly K-line and weekly K-line both show low positions, with volume accumulation at these lows, and the 3-day moving average is rising with volume, while the 60-minute chart shows volume increase and a bullish crossover, and large buy orders are displayed—these signals indicate the stock is in the early stage of a hot sector, making it an ideal short-term entry point.

Strategy 5: Disciplined stop-loss and take-profit

If your judgment is wrong and the stock continues to decline after buying at a low point, immediately cut losses. Conversely, when the stock reaches your psychological profit target, take profits immediately—don’t be greedy for higher prices.

The importance of technical analysis

Markets always look forward, reacting to current events. Factors like fiscal policies, global economic conditions, and domestic and international political environments influence market trends. In this complex environment, technical analysis becomes especially important—it helps traders extract tradable signals from price movement patterns.

The ultimate understanding of short-term trading

Short-term trading is a high-frequency trading mode, where traders aim for relatively small gains per trade but accumulate overall profits through increased trading frequency.

Key points to clarify:

1. Short-term volatility is inherently unpredictable
2. Risk control is the top priority for survival
3. Profits only materialize when prices move significantly in your favor
4. Time is an ally after establishing a position, enabling profit realization

Excellent short-term traders should be adept at identifying potential opportunities, effectively controlling risk exposure, and flexibly applying technical analysis methods to sustain profits in fierce market competition.