Master the key techniques for defining short-term trading and identifying the right timing

Short-term trading is a market operation strategy where the entry and exit time spans from several days to a few weeks, commonly known as trading on the short side. This type of trading features high trading frequency and small profit targets, but at the same time, risk management is relatively more challenging. In short-term trading, an order may be completed within minutes, and traders may hold positions for several days. To profit in this fast-paced market, the key lies in accurately identifying buy and sell opportunities and establishing a comprehensive risk protection mechanism.

Definition and Characteristics of Short-term Trading: High Win Rate Is Key

The essence of short-term trading is speculative trading, characterized by ignoring the long-term fundamentals of listed companies, and often trading stocks with large volatility. The goal of short-term traders is not to share in the company’s growth profits but to capture speculative gains by targeting stocks that are hotly promoted by major funds in the short term.

In short-term trading, win rate is the decisive factor for profitability. Investors must calmly analyze the success probability of each trade. Many short-term trading experts use backtesting software to verify their strategies against historical data, thereby increasing their win rate in actual trading.

Where to Find Short-term Trading Opportunities

There are three types of short-term trading opportunities in the market, and traders need to choose appropriate entry points based on market conditions.

Level 1 Opportunity: Significant Fluctuations in Major Trend Segments

Features include obvious price swings, longer duration, and relative ease of identification. These usually occur in clear trending markets, where traders can more easily capture such opportunities through technical indicators.

Level 2 Opportunity: Repeated Fluctuations within Consolidation Zones

Market volatility is not too large but occurs frequently. Traders can accumulate profits repeatedly within these ranges by mastering the rhythm of fluctuations. These opportunities often exist in wide-range oscillation zones and are suitable for patient short-term operators.

High-Risk Opportunity: Abnormal Market Movements with Sharp Fluctuations

Due to major events or news, stocks may experience overbought or oversold conditions. These markets are highly volatile, and if traders lack technical skills or make poor judgments, they risk liquidation. It is recommended that non-professionals stay away from the market during these phases.

Technical Analysis: A Powerful Tool for Identifying Potential Buy and Sell Points

To identify the “correct” buy and sell points, traders must do their homework. Many investors are misled by current financial news, believing that reading more news allows them to grasp market dynamics. In reality, the market has already begun to react by the time we see the news. Therefore, mastering technical analysis is the key to seizing opportunities.

Moving Averages: A Reference for Trend Direction

Moving averages are among the most commonly used technical indicators. They help forecast price trends and determine dynamic support and resistance levels. When prices are above the moving average, it indicates a bullish trend; conversely, below suggests a bearish trend. Traders can adjust their positions accordingly.

Market Cycle Awareness: Grasping Four Stages

Short-term traders need to understand the four typical stages of market movement, which directly influence buy and sell decisions.

Stage 1: Range Consolidation

In the absence of a clear trend, prices are often confined within a range, fluctuating between predictable highs and lows. Bulls attempt to push prices higher, while bears exert resistance. If prices break out of the range, market forces will pull prices back. The longer the consolidation, the more violent the eventual breakout. Traders should pay attention to volume to distinguish true breakouts from false ones.

Stage 2: Breakout

This is the phase where the market breaks inertia and shifts momentum. After the breakout, volatility transforms into a clear upward or downward trend. Breakouts can take two forms:

• Linear Rise: Driven by significant fundamental changes, prices may surge straight up and then stabilize quickly. Traders should either enter early or wait and see.
• Wave-like Rise: If the breakout is not driven by fundamentals, prices will show a wave pattern with gradually rising highs and lows. During this stage, the moving averages trend upward.

Stage 3: Pullback

After reaching a peak, prices begin to retrace. The speed of the pullback varies with market momentum:

• Rapid Drop: Fundamental changes cause the market to react quickly, with prices falling several percentage points in an instant.
• Wave-like Decline: Prices gradually decline through series of peaks and troughs, each level facing selling pressure.

Stage 4: Uncertainty

After bullish and bearish phases, the market enters an uncertain period. A new cycle is about to begin, but the direction is hard to predict. Volatility is prominent, and even technical indicators may not be reliable. It is generally advised for traders to stay on the sidelines.

Trend Judgment: The Importance of Following the Trend

Trends can be long-term, short-term, upward, downward, or sideways. Accurate identification of trend direction greatly influences trading success. When the overall market trend is unfavorable to investors, the probability of success drops significantly. Therefore, trading with the trend is a fundamental principle of short-term trading.

Choosing Stocks Suitable for Short-term Trading

The secret to short-term trading lies in amplifying returns through turnover rate, so the focus is not on the company’s fundamentals, as both long and short positions are possible.

When selecting short-term targets, pay attention to three features:

Presence of Market Hot Topics

Stocks influenced by popular topics or news events tend to attract capital attention. This often occurs during periods of high market volatility or when companies release major news (such as earnings reports, mergers, new business launches).

Adequate Trading Volume

High participation from buyers and sellers facilitates entry and exit. Sufficient volume is a necessary condition for short-term operations; otherwise, liquidity issues may arise.

Large Price Fluctuations

Significant price changes provide ample profit space. The greater the volatility, the more opportunities for short-term trading.

It is important to note that short-term trading is not strongly related to the company’s long-term fundamentals. Even companies with strong long-term prospects may experience mid-term corrections or consolidation. Therefore, short-term operations rely more on technical analysis, such as identifying resistance and support levels for range trading or following trends until reaching the next key price level.

Practical Short-term Trading Strategies: Five Core Rules

The key to short-term trading is accurately identifying the current trend and entry points, making strategy execution crucial.

Strategy 1: Enter During the Early Stage of Bullish Arrangement

When the stock price begins to rise with modest gains, and the moving average system forms a bullish arrangement with a daily turnover rate around 3%, this is a buy signal. Wait for the price to retrace to the 5-day moving average before buying decisively.

Strategy 2: Strong Stocks Rising Against the Market

During a market decline, some stocks may rise over 5% against the trend with increased volume, showing strong short-term potential. Consider buying at the close of the day or during the next day’s pullback. The market has an old saying: “If it doesn’t fall when it should, it will rise.”

Strategy 3: Rapid Decline Followed by Rebound

After a quick rise, stocks may experience a sharp decline with decreasing volume. When the decline exceeds half of the previous rally, it signals a short-term rebound opportunity.

Strategy 4: Technical Indicators Confirmed at the Start

Monthly and weekly K-line patterns are at low levels, with volume accumulation in the low zone. The 3-day moving average is rising with volume, the 60-minute chart shows volume and a golden cross upward, and continuous large buy orders appear. This indicates the stock is just starting in a hot sector and is ready for short-term entry.

Strategy 5: Discipline in Stop-Loss and Take-Profit

If a mistake is made, or after buying at a low point the stock continues to fall, stop-loss immediately. When the price reaches your predetermined profit target, take profit promptly. Do not let greed cause losses.

Mindset Management: The Final Line of Defense in Trading

Many traders blame poor mindset for losses. Success in simulated trading is easy, but real trading often results in frequent losses. The root cause is the execution of mindset. A correct trading mindset should be built from the following aspects:

Emotional Control Is the Foundation

Absolutely control emotional fluctuations during trading. Do not panic after temporary losses, nor become overconfident after small gains.

Capital Management Is Fundamental

Good allocation of funds and position sizing determine the risk per trade. Never gamble everything on a single trade.

Proper Understanding of Losses

Losses are a normal part of trading. The key is to recognize mistakes quickly and keep losses within manageable limits.

Prioritize Risk Management Over Profit

Always remember to set stop-loss orders. Risk control should take precedence over profit targets at all times. Only traders who survive can make money.

Market Forward-Looking: Cannot Ignore the Future

Markets always look ahead, reacting in advance to current events. Fiscal policies, global economic patterns, domestic and international political environments—all influence market trends. In such a complex environment, the importance of technical analysis becomes even more prominent.

Through technical indicators and chart analysis, traders can objectively grasp market rhythm rather than being led by news and rumors.

Summary: Three Levels of Understanding in Short-term Trading

Short-term trading is a common strategy where traders aim for relatively small gains per trade but increase overall returns by raising trading frequency. To achieve consistent results in this mode, traders should remember three key points:

First, short-term volatility is hard to predict perfectly

Even with a comprehensive technical indicator system, errors can occur. Always prepare risk mitigation plans for mistakes.

Second, controlling losses is fundamental

Profit-loss ratio often has a greater impact on final returns than win rate. A strategy with 50% win rate and a risk-reward ratio of 1:3 is, in the long run, better than one with 70% win rate and 1:1 ratio.

Third, wait for key opportunities

Only when prices fluctuate significantly in a favorable direction can short-term gains be realized. This requires patience and the accumulation of opportunities over time.

Short-term traders should be skilled at using technical analysis to identify potential trading opportunities and effectively control individual and overall risks, thereby achieving stable growth in volatile markets.