Short-term trading

Short-term trading is a strategy focused on opening and closing positions within a brief period, typically days or weeks, and sometimes even shorter. This trading style is particularly popular among retail and institutional traders aiming to profit from minor price fluctuations and short-term trends.

Overall, short-term trading is more speculative compared to traditional investment methods. This article explores various short-term trading strategies, including scalping, intraday, and swing trading. Additionally, it outlines how to begin short-term trading on our online platform and discusses related costs and risks.

Short-term vs Long-term Trading

Short-term trading centers on quick profits through fluctuations in an asset’s price, while long-term trading focuses on fundamental factors for steady returns over an extended period. Short-term trading is often viewed as more speculative than the traditional buy-and-hold strategy.

Short-term trading frequently involves derivative products like spread bets and CFDs, allowing you to open a buy or sell position based on anticipated price direction. However, trading with leverage on our platform also entails significant risk. If the market moves unfavorably, you could incur losses greater than five times your deposit due to the full value of the leveraged position.

Both short- and long-term trading offer advantages. Short-term trading provides more variety but comes with leverage and margin risks. Conversely, some investors prefer long-term strategies, paying the full position value upfront and taking asset ownership, whether in shares, commodities, currency pairs, or indices. Position trading offers a derivative-based alternative for long-term strategies.

Your choice between short-term and long-term trading depends on your goals, capital allocation, and risk tolerance, as these factors impact position outcomes.

Short-term Trading Strategies

Scalping

Scalping is an ultra-short-term strategy where traders aim to enter and exit positions in seconds or minutes. Scalpers execute hundreds of trades daily, relying solely on price action and technical analysis, often overlooking fundamental analysis. This approach is popular in forex and commodities markets, especially for assets like EUR/USD and crude oil, which have high volatility.

Since scalpers execute numerous trades, the risks are amplified due to the greater chance of losses, even if individual stakes are smaller.

Day Trading

Day trading, a popular short-term strategy, involves buying and selling multiple instruments throughout the day, with positions closed before the market closes to avoid overnight fees. It balances the high-speed scalping strategy with longer-term approaches like swing trading, using hourly charts to spot trends.

Day traders, with slightly more time than scalpers, study previous day’s highs and lows to form strategies, avoiding overnight risks like price gaps and slippage.

Swing Trading

Swing trading is a short- to medium-term strategy, holding positions for days or weeks. Swing traders look at price “swings” and attempt to predict price movements, commonly using this strategy for stocks. Unlike scalping and day trading, swing trading combines both technical and fundamental analysis to gauge economic events affecting price trends.

Short-term Trend Trading

Trend trading can be short- or long-term. Short-term trend traders focus on price trends lasting minutes, hours, or days, aiming to profit as long as the trend holds. Typically, traders go long in upward trends or short in downward ones. Trendlines on our platform can aid in identifying emerging or reversing trends.

Example of Short-term Forex Trading

Here, we illustrate a forex scalping strategy using the USD/JPY pair, a highly liquid and sometimes volatile pair. Scalpers use 30-second candlestick charts to spot buy and sell opportunities, relying on indicators for opportune entries and exits.

Consecutive green bars may signal an uptrend for buying, while red bars signal a reversal for selling. Scalpers can repeat this throughout the day, profiting from small price movements.

Example of Short-term Stock Trading

In this example, a day trading strategy is applied to Goldman Sachs shares. Day traders focus on market opening and closing times for liquidity and volatility. The chart below marks entry and exit points.

The uptrend here allows a buy position at market open, avoiding overnight holding risks. As shown, there was a price climb from $294 to $297 at the start, while the end of the day showed a price drop from $308 to $303. Day traders avoid potential overnight losses by closing out positions each day.