Short-Term Trading Strategies that Work in the Stock Market

Trading in the stock market without a proper strategy is like battling a war without a proper line of attack. There are unlimited numbers of trading strategies that traders use as per the different market conditions and their risk-bearing capability. You can use also the strategy that suits your trading style, time horizon and fund availability.

However, the question right here is everyone looking for a strategy that works and has the potential to give some returns in a short time period. In fact, there is no strategy that suits everyone and guarantees to give returns on every trade. However short-term trading strategies provide better trading opportunities to different types of traders.

What is Short-Term Trading?

In layman term, short-term trading is simply entering into a contract to buy or sell an underlying security for a short period of time, usually for days or few weeks. You can enter into the trade position to earn profits within a few days, and it can take time to move the stock as per your expected levels.

Though, short-term trading can be unpredictable and risky if the market remains volatile, but compared to intraday you get more time for stock price movement. If you trade with the right strategy it will work for you and can give good returns in the short-term. Hence, we brought here short-term trading strategies that work most of the time in the stock market.

10 Short-Term Trading Strategies that Work:

#1 Short-Term Trading Intraday or Day trading

For experienced traders who have mastered price action, technical patterns, and market psychology, day trading is one of the most popular trading strategies that experienced traders use often. In day trading or intraday trading, you have to buy and sell the stock or any underlying security for a single day. This means at the end of the trading session on that day, you can square off your trade position either your earn profit or incur a loss.

Day trading could be risky, especially for new traders, but if bet on the right stock, at the right time at the right levels, it will work and can give you a profitable journey. And to pick the right stock you need to use the best technical indicator for intraday while considering various other factors like market trend, sector trend and market sentiments.

#2 Short-Term Trading Trend-based Trading

Trade the trend or trend is your friend, is another trading strategy that you can follow for short-term trading. The trader needs to be aware of broader trend of the market/ stock/ indices and trader accordingly. Suppose, the trend is bullish and a short pullback can be considered as buy the dip to profit from the swing trade.

Trend based trading can be done on indices level also. Three are season when particular indices outperform/ underperform. In time of weakness in market, market participant turns to defensive stocks like consumer durable, defence stocks, etc. In growth environment investor tries to trade on infra stocks. You can use various indicators to find the trending stocks suitable for the short-term trading strategy.

#3 Short-Term Trading News-based Trading

If there is certain news in the market like political changes, economic data, industrial data or the central bank’s monetary policy that can affect the stock market movement. You can create a short-term trading strategy on such news or events, it works most of the time.

But make sure your estimates or prediction regarding the news outcome and its impact on the stock, market, so that based on your forecasting you can create a long or short position in the market. Many times market discounts such news or events in advance, hence creating the position accordingly and booking the profit when news comes in the market.

#4 Short-Term Trading Momentum Based Trading

Momentum-based trading is another popular trading strategy that works many times for short-term trading. If any stock market index not moving for many days, and suddenly there is significant movement, you can create a trade position based on its momentum.

There could be anything moving this stock like its quarterly results, corporate actions, breakout or surge in the volume of trade etc. because of that it is moving now. Though momentum could be for a short period for short-term trading it will work for you and can give returns.

#5 Short-Term Trading Swing-basedT rading

For short-term traders, swing trading is one of the best trading strategies that can work in a few days or weeks. In swing trading, you can trade in upper and lower trading ranges with the opportunity to buy or sell the stock when the price swings between this range.

In swing trading, you can create long positions when prices are low and sell when the price reaches a higher price. Compared to intraday, in swing trading, you can hold your trade position for long days but less stress compared to delivery-based positional trading.

#6 Short-Term Trading Scalping Trading

Scalping is another one of the best short-term trading strategies providing multiple trading opportunities within a very short period of time. Under this trading strategy, you can make small but frequent profits and suitable for experienced and highly active traders.

Scalping gives multiple opportunities to trade, hence the trading cost increases due to transaction charges or other fees on every trade. This can affect your profit margins on each trade or increase the cost of acquiring the stock or any other underlying security.

#7 Short-Term Trading Breakout Trading

The breakout of the price from the trading range gives one of the best short-term trading opportunities to traders. In this strategy, you have to identify the potential to break out from a trajectory and move further in the same direction. This strategy works when there is a huge volume of trade supporting price move in the upward direction after the breakout.

The breakout trading strategy can give you a clear signal to exit or enter into a trade position but sometimes there could be a false breakout. To check the breakout you can read and analyse the candlestick chart patterns. For the confirmation, you should be the technical indicators to maximize your chances of profits and minimize the chances of losses.

#8 Short-Term Trading Trend-reversal Trading

Trend reversal trading strategy is based on identifying the right levels and timing of reversal in the current trend. When the current trend is likely to reverse, you can trade with the short-term strategy till the new trend continues to enjoy some profits.

There are various trend reversal indicators like bullish  and bearish trend reversal patterns. You can use to identify the trend and enter into the right trading strategy. Moreover, you can also use the various technical indicators that can help you in identifying the trend reversal, as in short-term trading you can wait for the confirmation of the trade.#9 Algo-based Trading

Nowadays Algo-based trading is also very popular in which computer-based programs and algorithms analyse the market sentiments and market data to trade itself. However, you can choose the best algo trading strategy as per the market conditions and your time horizon, to take advantage of a very fast automated trading mechanism.

In algorithm-based trading, apart from short-term trading, you can also choose the Best Intraday Algo Trading Strategy that works for day trading. However, for the short-term, you can choose the trading strategy depending on various factors like market sentiments, time horizon, investment goals and budget. For this, you can choose the best algo trading platform.

#10 Short-Term Trading Strategies Involving Options

For short-term trading, you can choose the derivatives segment and create short-term positions in future or option contracts. You can pick the weekly, monthly or quarterly positions in F&O contracts that can work in the short-term giving the trading opportunity for traders. Apart from the main index in the F&O strategies, you can trade in various stocks that are included in this segment.

Depending on the market conditions, you can choose the best bullish option strategy, or pick the best bearish option strategy and trade into the best option strategies for the sideways market. However, the option market is meant for hedging to take advantage of price fluctuations of underlying securities you held in the physical form without selling them in the cash market.

Best Short-Term Trading Strategies for Volatile Markets

Most of the trading strategies work when the market moves in a single direction. And when the market is volatile there are only a few trading strategies that can work. For short-term trading in a volatile market, you have to trade in the future and options, where you will get various trading option strategies that work even when the market is volatile.

You can buy puts or short calls or can choose to trade with short straddles or strangles and iron condors option strategies as per your perception towards the market. Apart from there are multiple other combinations of optionh strategies that work in a volatile market. But understanding and trading with such a complex trading strategy, apart from applying the best and most popular technical indicators you also need knowledge and experience in the option market.

Best Technical Indicators for Short-Term Trading

For day trading or short-term trading, you need to perform the technical analysis and without technical indicators, it is not possible to do that. Hence you should know which technical indicator or tool is effective and helpful in finding the best stocks for intraday trading or short-term trading. Although there are unlimited indicators only a few of them are suitable for short-term trading.

For short-term trading, you can use RSI,Moving Averages, MACD,Bollinger Bands or apply the Fibonacci Retracement to make your trading strategy work as per your expectations. Though many times indicators and strategies fail trading without a strategy is like playing the blind game in the casino, where you bet your money totally on your luck.