Unveiling Short-Term Trading: A Complete Guide from Stock Selection to Execution

Short-term trading, commonly known as day trading, is a rapid entry and exit trading method. It can be completed within minutes or held for several days. This strategy offers high profit potential but also carries significant risks. Successful short-term traders need to master stock selection, accurately identify buy and sell timing, and learn to protect themselves amid market volatility.

Core Features of Short-term Trading

Short-term trading refers to market operations with a trading cycle of several days to weeks. Compared to long-term investing, short-term trading is more speculative and riskier. Traders do not focus on company fundamentals but instead follow major capital flows and market hotspots to profit in a short period.

‘Win rate’ is the fundamental of profitability in short-term trading, investors must calmly analyze the probability of success for each trade. Many experienced traders use backtesting software to verify their strategies to improve reliability.

Finding Suitable Targets for Short-term Trading

The key to successful short-term trading is ‘amplifying gains through high-frequency operations’. Therefore, target selection does not depend on fundamental strength; both long and short positions are feasible.

Ideal short-term trading targets should have three main features:

• ‘Market hotness’: Driven by market topics or news, prone to volatility
• ‘Sufficient trading volume’: Active buyers and sellers, easy to enter and exit
• ‘Significant price fluctuations’: Large price swings, providing ample profit opportunities

Such targets usually appear during periods of high market sentiment, when companies release major news (such as earnings reports, news announcements), or during policy favorable periods.

Market Opportunities in Short-term Trading

Primary opportunities: Large price movements, long duration, easy to identify, often in clear trending markets.

Secondary opportunities: Smaller but frequent fluctuations. If traders can grasp the rhythm, continuous accumulation can also be profitable, typically in wide-range oscillation zones.

High-risk opportunities: Market with intense volatility caused by sudden events leading to overbought or oversold conditions. Without strong technical skills, significant losses are likely.

How to Identify Buy and Sell Timing—Four Key Steps

Step 1: Observe Moving Averages

Moving averages are fundamental technical indicators. They help traders forecast price trends and determine dynamic support and resistance levels. If the price is above the moving average, it indicates a bullish trend; vice versa. The arrangement of moving averages visually reflects the market’s bullish or bearish strength.

Step 2: Recognize Market Cycles

Market operation generally follows four stages:

Stage 1: Range-bound oscillation — When no trend exists, prices fluctuate between predictable highs and lows. Both bulls and bears are balanced, making it hard for prices to break through established ranges. The longer the range, the stronger the subsequent breakout. Traders should judge the authenticity of breakouts through volume to avoid false signals.

Stage 2: Trend breakout — The market breaks inertia, transforming volatility into a clear upward or downward trend. If driven by fundamental changes, prices may rise sharply and stabilize quickly; if the breakout is mild, it shows a stepwise rise with successive highs and lows. Moving averages continue to rise during this stage.

Stage 3: Price correction — After reaching a peak, prices retrace. If fundamentals change again, the market reacts swiftly, and prices drop instantly; if the correction is mild, it appears as a stepwise decline with peaks and troughs.

Stage 4: Uncertain period — After bulls and bears complete their moves, the market falls into confusion, and the cycle needs to restart. Volatility becomes obvious, technical indicators lose effectiveness, and it’s advisable to stay away from the market.

Step 3: Determine Overall Trend

Trends include long-term, short-term, upward, downward, sideways, etc. Negative trends suggest considering short positions; upward trends favor long positions. Trading with the trend can significantly improve success rates.

Step 4: Adjust Trading Mindset

Mindset determines execution. Simulated trading is easy to succeed in, but real trading often results in frequent losses, mainly due to psychological factors. Short-term traders should:

• Strictly control emotional fluctuations
• Establish scientific capital management systems
• Correctly understand the inevitability of losses
• Stick to stop-loss discipline, prioritizing risk management over profits

Five Major Trading Strategies for Short-term Trading

Strategy 1: When the stock price begins to rise, with limited gains, and the moving average system forms a bullish arrangement, and the daily turnover rate reaches about 3%, wait for the price to retrace to the 5-day moving average and then decisively enter.

Strategy 2: During a market decline, if a stock rises over 5% against the trend with increased volume, it has short-term potential. Buy at the close of the day or during the next day’s pullback. “If it doesn’t fall, it will rise” is the core logic of this strategy.

Strategy 3: After rapid price increases, if a sharp decline occurs with decreasing volume, and the drop exceeds half of the previous rise, immediately intervene to catch the rebound.

Strategy 4: Monthly and weekly K-line patterns are at lows, with accumulation at low levels, the 3-day moving average rising with volume, the 60-minute line showing volume and a golden cross upward, continuous volume at the opening, and large buy orders frequently appearing, indicating the stock is entering a hot start phase, ready for entry.

Strategy 5: When a misjudgment leads to buying at a low point, and the stock price continues to decline, stop loss immediately. When the price hits a psychological target, take profits immediately—do not be greedy.

The Importance of Technical Analysis

The market always looks forward. Current fiscal policies, global economic conditions, geopolitical factors, etc., influence the market in real-time. There is a lag between news dissemination and market reaction, so technical analysis helps traders identify price signals and position themselves early.

In short-term trading, technical analysis is especially critical—it helps traders find ‘resistance’ and ‘support’ levels for range trading or follow the trend to go long or short until hitting the next key level.

Summary

Short-term trading is a strategy focused on high-frequency operations and accumulating small gains. To succeed in short-term trading, traders must:

1. Recognize the current trend direction of stocks
2. Accurately judge entry timing
3. Master technical analysis methods
4. Strictly implement risk management
5. Be skilled at identifying market cycles

Experts in short-term trading know how to seize opportunities amid market fluctuations while maintaining their bottom line to prevent profits from evaporating.