A Short Term Trading Strategy
What does the open/high/low/close prices of a stock do with our trading? What to do when stock price moves unexpectedly up and down? This simple strategy will tell you the way to make optimum business of short term stock price fluctuations.
Short Term Trading
Out of the three types of short term trading swing trading is proven to be the best. The other are day trading and position trading. When the market becomes volatile the swing trading is very beneficial.
We see that the market price doesn’t move steadily. Sometimes it moves up and down by larger amounts in shorter periods of time. Day trading is meant to maximize profit by exploiting this short time volatility. But as we see that day trading is very risky if the market price doesn’t go up by the end of the day. Then how to exploit these short term volatility in the market?
Strategy
We need to employ a better strategy to exploit this volatility. Most of the investors are driven by greed and fear. That’s why we see lot of fluctuations leading to large divergence in open/high/low/close price of a share. If we pick those stocks, the high/low difference of which is very high and is consistent everyday, then my strategy works best. By picking large high/low difference you can do swing trading even for a short period of time like 2-4 days without the risk associated with day trading. We have capture the lows when buying and highs when selling. It comes with a bit of research on the stocks and little experience in trading.
3 Comments
could you give me, signal everyday for one month,
i will try it.
thanks.
yodi_oscar,
Sorry for my delayed reply.
This can be best applied when markets do not seem to behave as per fundamentals for the time being. That is why it becomes very short term, say one week to one month.
Present scenario as I say around April-May 2008, is similar for the world markets. They are in a range bound fashion. Even though they are choosing direction day by day, it is pretty clear that the highs of one day are most often becoming another high on the next or later day. This can create lot of confusion because there will n number of highs/lows on n days.
Most preference must be given for the high/low of previous day. When two consecutive days high or low is very nearer that means you can take down or up direction decisively.
But one thing must always be noted. Please use strict stoploss as this is very short term trading strategy. Use atleast 5% stop loss or use the high or low point under consideration plus 1% as stoploss trigger point. To reduce your losses further, try to enter at or near to the high or low point and put stop loss. This stop loss will nearer to the entry point.
If you had noticed some stocks or for example Dow Jones, it struck it high twice successively, above 13k and changed direction. Now it is clear it very far from it. Previously two months back , it touched 11.8k successively and many times. After that it changed direction and went up.
Close your position when it finds tough to move on or moves in opposite direction. As long as it moves more in your direction than in opposite just sit tight to let profits run.
Any queries will be answered this time with lesser delay this time.
Moreover, this kind of stock specific analysis would involve some time and dedication on our part. These rewards come with little regular effort. But it is worth it. Once you find several strategies which can work regularly to provide a regular income though small, they can accumulate because of compounding effect. Then this can be chosen as a full time profession (to trade stocks for short term).
What long term investors forget is that long term investing in stocks does not give compounding of returns but the short term will give. Also compounding works exponentially and not linear. Do the math to find out. That is the reason why many people ignore short term thinking small profits and more effort on our part. But the compounding can give much higher returns.