Short-term trading can last as quick as a few minutes or as long as many days. This type of trading requires a certain skill set involving the in depth understanding of the risks and rewards of every trade that is made, being able to recognize and profit from short-term opportunities, and must be able to handle and control any unpredictable occurrences. There are some fundamentals that are very important for successful and profitable short-term trading. The first step is to know how to find profitable situations and avoid dangerous circumstances. One big problem is that by the time you hear on the news of a good situation, it’s too late and it has already begun to affect the market. There are three steps that will help to find healthy stocks. Watch the moving averages, understand the overall cycles or patterns of the market, and get a sense of the market trends. With these three guidelines, it will be possible to spots potential healthy trades to invest in. One of the most important factors of successful trading is being able to control your risk and understand how to obtain the best return. To do this involves sell stops and buy stops for protection from market reversals. A sell stop is an order to sell a stock once it reaches a predefined set price. A buy stop is when the stock rises to a certain point and turns into a buy order. The concept of this strategy is the capability to manage possible losses so that the gains will be significantly higher than any unfortunate losses. Lastly, it is important to recognize the buy and sell indicators like relative strength index (RSI) and the stochastic oscillator. The RSI compares the strengths and weaknesses of a stock. If the RSI reads a 70, the stock is healthy. If the RSI reads 30, the stock is oversold and a non-profit situation. The stochastic oscillator is used to determine if a stock is expensive or a deal based on the stocks previous
history of its closing price over time. A reading of 80 represents the stock being overbought and expensive. A reading of 20 means the stock is oversold and inexpensive. Any investor utilizing short-term trading must understand and apply these rules and skills if there is any chance for a profitable return and control of losses.