Short term trading can be defined as entering a trade of a stock and exiting a trade within short periods, unlike investing for long periods spanning months, years & decades.
There are majorly 4 types of short duration trading
Day Trading – Most popular short term stock trading
- Trading only for a specific day and hence all trades close before market close daily.
- Looks for small profits (rewards) and usually trades multiple stocks (3-5) in a day.
- Risk is kept small (tight Stop loss).
Swing Trading
- Trades are bought and hold on for 3-4 days to couple of weeks, depending on the swings of the stock.
- Targets more profits (rewards) than a day trader.
- Wider Stop loss than for a day trader.
Position Trading
- Trades are bought and hold from couple of weeks to many months
- Looks to get more rewards than Day traders or Swing traders.
- Widest stop loss than Day traders or Swing traders.
Scalping
Scalping is a trading style which involves buying & selling stocks in seconds / minutes. This is considered a part of day trading.
- Trading only for a specific day and hence all trades close before market close daily.
- Looks for small profits (rewards).
- Risk is kept very small (tight Stop loss).
Technical Analysis is the preferred Stock pricking methodologies for these short term trading types. Fundamental Analysis is usually preferred for long term investing, looking at company fundamentals & other economic factors.
Short term stock trading involves a lot of chart studies, preferably Candlestick Charting where each candle in the charts represents price movement of a stock for a defined time period.
Traders & investors use different time frame charts for their different style of trading.
| S.No. | Trading Styles | Time frame for charts |
| 1 | Scalping | 1 minute charts |
| 2 | Day Trading | 5 minutes charts |
| 3 | Swing Trading | 60 minutes charts |
| 4 | Position Trading | Daily charts |
| 5 | Investors | Weekly charts |
How to choose a trading style?
Choosing a trading style could depend on the below considerations
The trading period & holding time
If you could not stay in front of the computer the whole day monitoring your trades, then day trading obviously is not for you.
Swing Trading or Position trading would suit you better in that case.
Those interested in Part time trading would rather opt for Swing Trading or Positional trading.
Your risk appetite
Day trading is the most difficult of all trading types as this necessitates you to stay exposed to the market noises for longer duration.
So, if one is willing to take more risks in trading with greater profits, than day trading is what he should opt for.
Swing Traders and Positional trading also carries risk for holding stocks overnight.
The size of your trading equity
If your trading capital is less, day trading would suit you better.
Day trading gives you good leverage or margins and hence you can trade bigger with small capital.
Choosing your niche trading style could take some time to develop as traders usually discovers their own niche through years of different styles of trading.
A beginner can consider the above factors to choose their style of trading.
Beware, mixing two or more Short Term Stock Trading styles is not recommended as this could have a drastic result on your trade.
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