Updated: Jun 7, 2021
Short-term trading can be very lucrative but also be risky. A short-term trade can last for as little as a few minutes to as long as several days.
To succeed in this strategy as a trader, you must understand the risks and rewards of each trade. You must not only know how to spot good short-term opportunities but also how to protect yourself.
Several basic step and concepts must be understood and mastered for successful short-term trading. Understanding the fundamentals can mean the difference between a loss and a profitable trade.
Short Term Trading is a fast in fast out strategy. It can short from few minute to several days. It is encourage do not overnight or cross weekends, to prevent any bad news that will crack the momentum of the share price.
Worth saying short term trade at some point it is less riskier than mid and long term trade. You are less expose to market uncertainty and company risk. You can read out many real life story from : DIRTY MARKET. There is no assurance for company future, economy crisis or disaster that will cause volatility of share price.
How many company fall into accounting fraud and scandal cases without any alert. Example, LEHMAN BROTHERS , ENRON, LUCKIN COFFEE (china), London Biscuit (MSIA) , Serbak Dynamic and many… Short term trade can be avoiding all bad news hit your share price, before the news announce, we already sold the share.
Of cos, any strategy has it strong and weakness. Understand the fundamental as we share below, will give you some step for you to go thru one by one to create an effective strategy that can achieve high return with lower risk .
Step 1: Select a correct stock
Select the “RIGHT” stock is very important step. It will decide your trade to be lose or win. If you picked a wrong stock, whatever trading strategy it will fail.
A) Choose the right sector
Try to pick a stock that are in the current trend. Example during Covid-19 crisis, any company related to glove, the share price spike with no ended. Must bare in mind, always pick a stock that is chasing by as much as investor, it will increase your winning rate. A stock do not attract investor, it hardly to make it move.
B) Choose better fundamental company
Short term Trader would prefer penny stock than big cap company, because of the cheaper share price, which allow them to buy more unit and easier to make substantial profit. In fact, a lot penny stock does not have a good financial condition, most of them are loss making company. Many think that Trader can ignore company's report, because short term trade are aiming a temporarily rise of the share price. But we still recommend try to screen through financial report before enter trade, eg: net profit, cash or debt ratio.
Reason of doing it, a healthy financial company, share price will have better support. May be a group of investor are hoping company will perform a result future in future. Please read article from mid and long term strategy how to understand financial ratio, or learn some basic fundamental from knowledge
C) READ NEWS
News can bring an effect to share price, it can be short term or long term. You can pick your stock from news. News does attract investor to rush into market to purchase the stock. Try to read as much news as you can, and latest quarter financial report. We will discuss a good example - INARI, when you continue reading.
D) HIGH VOLUME
Volume work as an accelerator for share. When share appear in the list of top 30 volume of the stock, it will attract investors. Everyone will think there is possible something is happening of the company. It could be some yet announce upcoming news, unexpected financial result, or big player trying to manipulate share price. This is why, short term trader like to find their preferred stock from “TOP VOLUMN” ride the boat with big player.
Step 2: Chart Pattern
After step above, once you found a stock, you need to be quickly cross check the historical price of the company by looking on the - PRICE CHART. Chart is a graph showing the movement price of the past. it will help you to analysis is there any potential profit from the current trend. Example like price reaction on every news in share price, daily volume, chart pattern and trend, support and resistance, room of profit then try to predict possible up coming trend. Chart pattern analysis is very important for short term trade. Chart pattern also tell your risk and room of profit.
*Strongly recommend, Do your homework after market close so you can prepare next day trade. you will have not much time to study the company chart and fundamental during market start.
Candlestick patterns are used to predict the future direction of price movement. A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars. There is a lot candlestick pattern, eg like: HAMMER, ENGULFING, DOJI, and so on. We will not discuss a lot here, because all info can be study from internet. i will discuss 3 most important candlestick pattern, which is Marubozu, DOJI and three white soldier/ Three line strike.
It is kind of candles bar with fat and long body, the longer the body, represent high momentum. High possibility will drive share to continue went up on next day, take profit before correction (3 day rules). Just to make sure open price does not gap too high from previous day. Gap up too high, tends to become dangerous, profit taking maybe will happen early.
Below is a example
It is company of MAHSING. As you can see the from the DAILY CHART, the share price before rocket shoot, it didn’t move much, it is hovering for a period of time. Take at least 3 month price trend. You also can analysis whether share is munipulated or healthy trend.
A Doji candlestick forms when a security's open and close are virtually equal for the given time period and generally signals a REVERSAL pattern for TECHNICAL ANALYSIS. Doji interpret as a sign of reversal, when a share is hardly panic sell off or push up to very high price, at the end form of a doji as below. Doji is a very good information to tell us, trend might going to reverse opposite direction. As a Trader like us, we see doji as a important indicator to look for potential profit, as the share going to have a reverse trend.
3) Three line strike
We will discuss more on Step 4, this is a very important strategy that you cannot avoid. By looking at the candlestick pattern, you can realise whether you will have a potential of profit. It is a very good indicator that will tell your entry point and exit point.
Step 3: VOLUME and PRICE
All known information about the stock is reflected in the price and volume. It is highly important in short term trade, without this information, there is impossible to make a safer trade. Volume work like a vehicle's accelerator, price is the difference between your risk and reward. To justify high volume or value of price is very subjective. Through your trading experience and more practice, you will encounter how to use both as your weapon.
If volume break 1-3 month like graph below, it means big player is in the market to attract investor, they try to get investors excited, once a lot investor has jump in, they will the push the share, and sell it all at high price to investor. Check out the share as below, before the share sky rocket, it is hovering around RM 0.70, huge volume appear on 16 oct then 18 Oct once reach above RM 1.40, a 100% changes in 3 days, then share price drop to Rm 0.90 with lower volume, why? Because big player already sold all their share to investor between 16- 18 Oct.
The stock market is driven by supply and demand, much like any market. When a stock is sold, a buyer and seller exchange money for share ownership. The price for which the stock is purchased becomes the new market price. When a second share is sold, this price becomes the newest market price. The more demand for a stock, the higher it drives the price and vice versa. The more supply of a stock, the lower it drives the price and vice versa. So while in theory, a stock's initial public offering (IPO) is at a price equal to the value of its expected future dividend payments, the stock's price fluctuates based on supply and demand.
While stock price is determine by market, how do we predict the price of fluctuation. The answer is no one will know. Many people desire to look for the answer, and it is waste of time. We do care about one important question, from this moment the share is going to move up or down, how do we make profit before the share went up. Demand drive share price to go up, demand of the stock increase, it will drive the share price higher. By looking at Q analysis, it will help you find some trace, we will discuss on later step.
Psychological Price is a interesting topic, many people have less clue about this. Amateur investor like to place order at a price of exact number, RM 1, RM 1.50 or RM 2. For intelligent investor, they will sell at price of RM 1.10, RM 1.55, one tick above exact number. We have a lot experience when we saw an up trend stock, actively traded at RM 1.86, we will monitor and wait for the price to went up to 1.90, then we sell at Rm 1.91. There is no 100% able to sell at better price, but successful rate is almost 70%.
Gap up or down, also will affect investor behaviour, when they saw price sudden gap down, they will rush into market to buy up the share. Panic selling will force a share sell become under value, this is why it happen many time, a gap down share, will rebound very fast
Understand human behaviour is very important in short term trade, we are trading with human on the other side, or maybe machine. If we cannot understand how they think, how do we going to play this 1 minus cruel game, how will willing to give their money to put in your pocket. There is no formula or SOP for you, the best is your practice makes your strategy perfect.
Step 4: The 3 days rules/Correction
3 days rules is very important when we talk about timing of enter and exit stock. If you can master it, It will help you avoid stuck at high price or catch a good trade! We always guide our student/client, to remember the 3 days rules. It is do not apply in short term, also on mid / long term trade. There is some story we heard, a trader, he only trade few stock, which maybe not more than 10 stock, and make substantial profit, and the strategy is they trade when the share having correction period. So do you think it is super important to learn this
The 3 days rules, another word as “PRICE CORRECTION” or “PROFIT TAKING” moment. One of the reason why this will happen, Many investor puchase share by using leverage - T2 (DAY 2). Investment bank tends to allow client to trade share above their cash and give them GRACE PERIOD of 2 days to do settlement which we call LIMIT. Amount of limit is based on their cash and share as collateral. Client has the choice to settle the due with cash to hold long, otherwise they must sell on the 3rd day. This is why share price will drop SHARPLY as graph below. We can explain as many investor do not wish to hold long on this company, they only wish to try their luck make a short term profit, they do not trust the company has the value.
*T means day, T and T1, means the settlement date.
Lets say, you spotted a stock and you wish to trade it, before trend reverse, you can enter on T or T1 and sell before T2. In the condition of Marubozu and break high volume and price for a period of time.
Counter -INARI (0166). We see the share price has been drop for many days and stagnant about 6 days. On 21st May 2021, company make announcement of unexpected good quarter report. On Monday share price open higher at RM 3.05 then push above RM 3.15, then share price continue go up for next 2 days, then on 4th day, correction happen. if you follow 3 days rules, sell all or partial of your share on third day then wait after 2 to 3 days correction end, and buy back. you will have 2 time of profit.
Due to bad news announce about FMCO, market panic selling on 5th day share price open lower, which is gap down, so investor is getting excited to rush into market to take the advantages. Then the share price up consistently 3 days, then correction happen again. Dont you think it is super amazing.
What we can study from this stock price? This is a famous tech company in Malaysia, market cap of 10 billion, financially good company. We also heard a lot student and client told us, all share is manipulated, if we follow news, we will get trap at high price by company's dirty tricks, once news announced share price will drop rapidly, so we must look for insider news and follow it. This statement is ignorance and naive. Above graph already show the statement is not 100% correct, we do know many company like to use news to manipulate share price but is not for all, this is why we must study company chart pattern before enter trade. From historical price chart, we can understand a company share price behaviour. Just for a sharing, we have experience once, we hear a news from a friend, telling us a famous tech company is going to announce a very good news and ask us to buy. So we do checking on the company, from chart, we saw the price keep going up (higher risk), we believe the company already spread the news to many people, we decide to do nothing. after 1-2 days, the company announce the good news, price went up on first days then following days it start dropping for 3 days. but eventually on 3rd day, they use "spoofing" to push the share price and break new high.
Step 5 : Kuala Lumpur Composite Index (KLCI)
KLCI is a stock market index that tracks 30 large publicly-owned blue chip companies of US and Malaysia. It is most quoted financial barometers and has become synonymous with the financial markets in general. When someone say market goes up or down by a certain number of points, they're referring to the changes in index. A lot amateur always contempt the performance of the index, they don’t understand the close relationship between the index and company stock. When index is rapidly drop more than 10 point, company share price high possibility will get affected. It is Important to cross check trend of index, to avoid market risk.
Step 6: The momentum
Momentum is the power to drive the share to continue go up or down. Cross check the item above, to realise any continue momentum. A lot investor have wrongly thought, they like to buy down trending stock and expecting a rebound happening soon. Dont forget, a low stock price can go lower, high can go higher. If a share loss their uptrend momentum, it will not sustain and sudden rebound, it will continue drop and rest for a long period. At the end, all your cash will stuck. This is why, chart pattern, volume and price, index, is very important for you to understand where is the momentum.
Step 7: Queue Analysis
Queue(Q) analysis is very important to tips what is your entry and exit point. In Queue
you will SEE how many buyer and seller is waiting to buy or sell their share at preferred price. We have discuss on early, share price is determine by demand and supply in market. if there is a lot of cash chasing with very little of share, it will drive the share up. All of this, you can see it from the QUEUE.
As the q share below, we can see at BUYER side, unit queuing is more than SELLER side. Simplifies to explain the scenario, more buyer than seller. if buyer loss their patient, buyer maybe will cancel their order, purchase from seller, then share price will slowly went up. Bare in mind, to move the share price it need buyer to buy from the unit from seller side if the seller unit is a lot, it wont be easy. Take note, unit place in queue can be fake order, this is a tricks by operator to deceive investor. we will discuss more on following topic.
A share without big player, operator or syndicate is hard to move. You can always see their shadow in the Q. To make a share move, SELL unit must be little. Operator when try to kick away impatient investor, they will place fake order (PHANTOM ORDER) and withdraw it when they start to move the share price.
Cut it to short, when a share intention to push to high price, sell q need to become less and lesser and buy order increase rapidly. Once it is happening, very high possibility share price will move. Be firm and place a buy order then wait buy and sell in q become equal and loss the momentum, take profit and exit. Pair with 1 minute chart is recommended
Q Analysis need a lot practice and experience. Train yourself within your capability and tolerated risk. You may join our COACH programme, our trainer will teach you with full package of strategy, and you have a 1 to 1 trainer to guide you.
Step 8: Trading Hour
Do you know what is our BURSA trading hour, and how pre open and pre closing work? but we are not going to discuss is here, all the information can be search in internet. We wish to discuss more which is the most appropriate trading time to do trade, the best time to buy and sell.
1. OPEN HOUR- 9AM TO 930AM
market tends to be very active during this golden hour, it can be due to many factors or news from previous day. Many stock will active jump up for few minute, from 2 minute to 7 minute, to10-15% changes in price then weaken after few minute. This technique is very risky, if you unable to take profit within the few minute, the price will reverse with in the blink of an eye. If you are not a type of calm, try to avoid trading at this hour. You can Pair it with one minute chart, once realise momentum stop, take profit and go.
2. MIDDLE OF TRADING HOUR - 930AM - 10AM
Market will slow down after a actively trade moment. Then pair with 1 minute chart, to trace which start is slowly recover. This is an easy and suitable strategy for everyone, you will have more time to filter stock and place order, but on the other hand it can be high risk because anything can happen when your stock still in market
3. AN HOUR BEFORE MARKET CLOSE- 4pm
This is a best buy timing for mid term and long term investor to buy their stock. By using 1 minute chart, q analysis, and volume, you can spot another opportunity to make a short term trade. Big player always try to close the share price at high price before market close, it will help them to push the price to even higher on the following day. If you are risk taker, you can hold the share overnight, usually the share price will go even higher on next day. Then you can try to sell it between 9am to 930am, by monitor the trend in q and 1 minute chart.
Step 9: Cash management
The last step is your cash management. How do you control your cash of not over trade. Do not put yourself in financial crisis. Short term trade return it can be very great, but also contain high risk, it will wipe up all your profit with capital, in just a second. This is why we put it as the last step. We are not God, we cant accurately predict stock direction. We have experience many painful experience, no matter how well we have cross check, the moment we bought the share, the share start drop rapidly and fast, we get stunned, we stop the bleeding, but the share rebounded.
We are betting against big player or operator, they have a huge cash support and holding most of the share, they keep track their share movement. This is why we must trade within our limit, we cannot become their target. Always spare your cash,when there is a necessary to average down your cost. From our experience, we only allow us average not more than 2 times. The more cash you pump into an unpredictable direction, if you guess wrong, it turn out to be very ugly.
Determination is important in trading. If you cant spend more time to do your homework and focus, do not practice yourself as short term trader. You must keep learning, always improve your knowledge and tactics, so you can make less mistake and alter your strategy to fit the market.
We have seen many people lose ton of money in market, even people call themselves as Full Time Trader. But there do exist some long time trader that win in the market. Trading is easy, but consistently win the market, do need some glad strategy and discipline. This is the purpose we build this website, and write out article, so you do not become a lamb to be slaughter in market.
By reading this article only, will not make you a successful trader on next day, our objective is share with you what you should be aware when you try to become a successful trader. We are encourage you to join our COACH programme to get a full package of short term trading courses. Our trainer will guide you and build a strategy that will suit yourself, so you can well prepare to win against the market.