Short-term trading refers to those trading strategies in

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...

futures market A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...

in which the time duration between entry and exit is within a range of few days to few weeks. There are two main school of thoughts:

swing trading Swing trading is a speculative trading strategy in financial markets where a tradable asset is held for one or more days in an effort to profit from price changes or 'swings'. A swing trading position is typically held longer than a day trading p ...

and trend following.

Day trading Day trading is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, so that all positions are closed before the market closes for the trading day to avoid unmanageable risks ...

is an extremely short-term style of trading in which all positions entered during a trading day are exited the same day. Short term trading can be risky and unpredictable due to the volatile nature of the stock market at times. Within the time frame of a day and a week many factors can have a major effect on a stock's price. Company news, reports, and consumer’s attitudes can all have a positive or negative effect on the stock going up or down. According to Zweig (2006), “In an article in a women’s magazine many years ago we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume” (p. 8). This means doing the research to spot the best opportunities and leaving the emotion and outside appeal out of the decision to buy or sell. Simply watching the news or reading financial statements will not prepare one to have success in the short term. By the time news comes out the markets have already responded and most of the potential gains for investors are gone. Buying or selling a stock that does not have much volume can move it up or down. Small investors have little effect but large

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...

s and

hedge funds A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as ...

can determine the minute-to-minute pricing of stocks through

supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...

(Cramer, 2005, p. 96). Watching whether a stock is trending up or down can be a sign as to sell or buy in the short run. This is called the moving average or the average price of a stock over a specific period of time. As a stock is trending upward throughout a day or two it could be an opportunity for gains and as a stock trends downward it could be a great opportunity to short the stock. Many analysts use

chart pattern A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which ...

s in an attempt to forecast the market. Formulas and market theories have been developed to conquer short term trading. According to Masteika and Rutkauskas (2012), when viewing a stock's chart pattern over a few days, the investor should buy shortly after the highest chart bar and then place a trailing stop order which lets profits run and cuts losses in response to market price changes (p. 917-918). Historically, on average the stock markets lowest weekday is Mondays which offers a potential sale on any given stock (Lynch, 2000). Along with that, since 1950 most of the stock market's gains have occurred from November to April. Investor’s can use these known trends and averages to their advantage when trading. Due to the risk of short-term trading, small investors are often advised to limit short term trading and lean more towards value investing or buying and holding a position for the long term. According to Israelov and Katz (2011, p. 34), "Our suggestion (for long term investors) is to use short-term information for trade modification." This strategy has the value investor reviewing his stocks balance sheets, market signals, and charts every couple months in order to buy more or sell.

References

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