Short-term trading strategies are a popular way to benefit from smaller market shifts and provide an alternative to traditional investing. If you’re interested, there are basics to learn first.
At FBS, we’re committed to providing you with the trading tools and insights you need to thrive in the dynamic marketplace. From scalping to day trading, our strategies are designed to deliver results for beginners and professionals alike. Let’s dive into short-term trading and explore some strategies that work.
What is short-term trading?
In short-term trading, positions are held for brief periods, from just a few seconds, to several days. This is very different from the traditional buy-and-hold approach, where investments are kept for months or even years.
The focus in short-term trading is on price changes rather than the long-term value of an asset. The goal is to make gains from rapid price shifts, which are caused by market reactions to major events like economic updates, company earnings releases, political developments, or central bank decisions. This trading style is also known as active trading.
Short-term trading opportunities exist in various markets, including currencies, equities, commodities, etc. Whether you’re into short-term stock trading or short-term gold trading, there’s significant potential to profit from those little price changes. On top of that, short-term options trading and even short-term crypto trading are growing in popularity among those looking for opportunities in fast-moving markets.
Benefits and risks of short-term trading
So, why is short-term trading for beginners as popular as it is?
Potential for higher returns — Traders can earn quick profits by jumping on price changes. By doing it often, they can make more over time.
Flexibility to adjust positions — Traders can react quickly to market shifts and adjust their strategy based on the latest information.
Hedge against other investments — Short-term trading can help balance risks in long-term positions, especially when the market is volatile.
Capitalize on market trends — You can also trade based on news, earnings reports, and events that cause fast price movements — factors that matter less in long-term trading.
Be in control — Managing trades actively gives traders more control over their investments and keeps them engaged in the process.
A rewarding experience — The sense of satisfaction from making successful trades adds personal fulfillment to the financial rewards good trading can bring.
As with any trading approach, there are risks involved. We don’t want to downplay them, as they are especially important to keep track of when applying an aggressive trading style like short-term trading. Here’s a basic list of risks:
Higher risk of loss — Rapid price swings can lead to big losses, especially if trades aren’t timed well.
Requires constant attention — Keeping up with market trends and indicators takes a lot of time and focus.
Can be stressful — The need to make quick decisions can cause stress and anxiety for traders.
Needs a lot of knowledge — Short-term trading requires a good understanding of the market, technical analysis, and strategies.
Higher transaction costs — Trading frequently means paying more in trading commissions, which can eat into profits.
Can lead to impulsive decisions — The fast pace of trading can cause hasty decisions that lead to mistakes and losses.
Time-consuming — Research, market analysis, and trading, take up a lot of time. This may affect your work-life balance.
Popular short-term trading strategies
One of the secrets to short-term trading is knowing exactly what you’re supposed to do. What’s the timeframe? How often do you trade and based on what? These questions are answered by choosing a strategy and sticking to its setup rules.
For each strategy, you can use margin trading, which allows you to trade with borrowed funds to take larger positions than your account balance would normally allow. Also, you can try them out with backtesting first to check performance metrics.
Scalping
Scalping is the quickest trading style, with trades lasting only seconds or minutes. Scalpers enter and exit trades quickly to capture small profits, and they tend to focus on high-volume, liquid markets like EUR/USD and GBP/USD forex pairs. When it comes to short-term trading crypto, for instance, scalpers target popular, volatile coins like Bitcoin and Ethereum, and the same logic applies to all markets. Trades are usually during peak times when volume is highest.
Discover scalping trading: quick strategies, key indicators, best markets for high-frequency trades.
Successful scalping requires strong trading psychology because it’s so intense.
Day trading
Day trading involves opening and closing trades within a single day, with no overnight costs. Traders can make one trade or multiple trades throughout the day, depending on their horizons. It requires quick thinking, a lot of concentration, and the ability to work under pressure.
Swing trading
Swing trading is different from scalping or day trading because you hold positions for several days, so you don’t need to monitor the market constantly. It’s better for people with other commitments like work or school. However, you still need to put in time for technical analysis to spot trends and capitalize on them. If you miss the trends, swing trading won’t be profitable.
Momentum trading
Momentum trading is a strategy where traders focus on assets that are showing strong price movement in one direction. The idea is to buy when momentum is high and sell when it slows down. This approach relies on trend-strength indicators to assess the momentum of price movements.
Range trading
Finally, range trading means spotting key low points and high points (support and resistance) in a market that is moving sideways rather than trending. Traders purchase at the low point and sell at the high point, and they expect to profit from relatively predictable price fluctuations within a set range. This strategy works well in markets where prices move within a defined range before breaking out or reversing.
Short-term vs. long-term trading
A lot about effective short-term trading strategies becomes much clearer when you compare it to long-term trading.
Feature | Short-term trading | Long-term trading |
Time horizon | Spans days to weeks, focuses on quick price movements and market volatility | Lasts months to years, focuses on steady asset growth over time |
Investment goal | Profits from price fluctuations through rapid trades | Capital appreciation through steady growth and reinvesting dividends |
Risk tolerance | Higher risk, with potential for quick gains or losses | Lower risk, with focus on long-term growth despite short-term volatility |
Trading frequency | Frequent, with many trades per day or week | Infrequent, with few trades focused on long-term growth |
Focus | Technical analysis (charts, price trends) for quick decisions | Fundamental analysis (earnings, growth) for long-term value |
Suitable assets | Stocks, options, forex, crypto | Stocks, bonds, real estate |
Potential returns | High potential returns | Lower returns |
Trading style | Active trading with regular market engagement | Passive, with a focus on holding investments over time |
Suitable for | Those with market knowledge and the time to monitor trends | People seeking growth with a more hands-off approach |
Emotional impact | High stress due to rapid price changes and quick decisions | Less stress, with a focus on long-term trends |
Learning curve | Steep | Easier to grasp |
Tax | Higher taxes on gains from trades held under a year | Lower taxes on gains from assets held over a year |
Fees | Higher fees from frequent trades | Lower fees due to fewer trades |
Suitability | Best for those seeking quick profits with active involvement | Ideal for those aiming for steady wealth accumulation over time |
Key elements of effective short-term trading strategies
Whether you’re checking out the stock market in America or getting into cryptocurrency trading, there are a few key basics that analysts agree on for making short-term trading strategies that work.
Technical analysis tools
Start technical analysis by carefully studying the market in longer timeframes to identify significant levels, trends, and overall market dynamics. This broader context provides valuable information for short-term trading decisions.
Choose a trade setup that aligns with your trading strategy and risk tolerance, informed by technical analysis and insights from longer timeframes. This may include identifying chart patterns, trend reversals, or other technical signals. Also, identify key nodes — support and resistance levels and potential entry and exit points.
Chart patterns and indicators
You can use chart patterns to spot price movements. Look into common patterns like cup and handle, head and shoulders, triangles, wedges, and flags to predict when a trend might reverse or keep going.
Learn about common trading chart patterns and how to use them to make better market predictions.
Choosing the most effective technical indicators is a long and fascinating journey in every trader’s life. It’s important to realize that no single indicator is the basis for short-term or long-term investment strategies. On the contrary, each indicator boasts unique settings adapted to different market conditions.
For example, moving averages, RSI, MACD, and Bollinger bands are some of the most revered and time-tested indicators. By using them together, studying their signals, and observing price action and trading volume, traders can spot trade setups with a higher chance of success and make well-informed decisions.
Setting stop-loss and take-profit levels
Implement a sound risk management strategy by setting appropriate take-profit and stop-loss orders, as well as determining the trade size. This will help mitigate potential losses and ensure profits while remaining flexible in a volatile market.
Trading platforms and software for short-term traders
Now, the last step is to jump into action by using trading platforms and testing out short-term strategies that work.
Forex trading app by FBS
The FBS app lets you deposit, withdraw, manage accounts, and trade 550+ instruments. The design is simple and suits both beginners and experienced traders. With real-time charts, quick trade execution, and helpful analytics, it’s a great tool for short-term trading.
There’s also an AI Assistant feature that makes technical analysis easier and offers custom strategies.
MetaTrader 5
MetaTrader 5 is a popular platform that provides advanced features like multiple timeframes, expanded technical indicators, and greater market depth — all invaluable for executing fast-paced positions.
FAQ
What are the most effective short-term trading strategies?
There are a couple of beginner-friendly short-term strategies that work. For H1 trading, using multiple moving averages helps spot trends and entry points, and higher timeframes give a clearer market view. Combining EMAs with the Momentum Oscillator confirms trend strength.
For H4, a simple strategy is using MACD and Bollinger bands. When the price hits the lower band, it shows the market is oversold, and a MACD crossover signals a buy.
How can beginners get started with short-term trading?
Short-term trading strategies that work require a disciplined mindset and a comprehensive understanding of the market’s nuances. Key principles include identifying high-probability trading setups, implementing effective risk management strategies, and following a well-developed trading plan.
Beginners can start with the basics, like reading charts and understanding price movements. It’s a good idea to practice with a demo account first so you can get a feel for the market without risking real money.
How can I minimize risk in short-term trading?
Use stop-loss orders to limit losses and only risk a small part of your capital on each trade. Stick to high-probability setups, avoid overtrading, and stay disciplined with your entries and exits. You should also keep your emotions in check during market ups and downs.
How do technical analysis and chart patterns help in short-term trading?
They help short-term traders spot trends and predict price movements. For example, by looking at charts and key indicators, traders can identify patterns like support and resistance, or trading signals for price breakouts and reversals.
