If you know how to do short-term stock trading correctly, it can be very lucrative. However, although earning short-term market profits seems easy from the point of view from an outsider, it actually requires a lot of preparation, study and experience. At last, the key to make profits on short-term trading is the consistency in generating profits, rather than the size of the profits.
1. Use technical analysis.
Through some fundamental analysis, you can tell what stock to buy, while technical analysis shows you when to buy the stock. You should know that stocks don’t rise in straight lines, instead, they ascend in a succession of fast advances (runs) and consolidations. Each run can last from days to months and you should use technical indicators to get at the very beginning of an advance and get yourself out when it is pausing to consolidate.
2. Search for high probability trades.
Again, in stock trading, it is more important that how probably you are to make money, but not how much you can make on one trade. Though different traders have various approaches to scan and select stocks, at the end, profitable trading comes down to finding situations with the opportunities in your favor as much as you can. Long shots seldom pan out, but you should be able to make considerable money by composing a battery of 2 to 5 percent gains.
3. Cut losses and let winners run.
In order to make money on trading stocks, you don’t necessarily have to be right 100 percent all the time. As a matter of fact, you can be just less than 50 percent and still make your money. The most important thing is, you need to cut your losses short and run your winners. Generally, traders cut their losses in a range of 5 to 10%.
4. Market is always right.
The market is always right, so don’t bother yourself arguing with it. To move quickly, you need to develop your own opinions and execute them. However, having an opinion does not mean having a right one. If you think you are wrong while the market doesn’t act as what you expected, you have to correct the mistake immediately and exit the trade.
5. Don’t trade all the time.
Every trader has his own winning streaks, but sometimes no matter what you do, you make the money while in some other cases, no matter how hard you try, you lose the money. Whatever the reason is, the market favors a different type of trading, and you don’t have to trade at all the time. When you are experiencing a battery of losses, it might be the right time to exit the market and regroup.
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