Top 5 short-term trading strategies that pros use

Apr 13, 2022

Reading time: 5 min

Trading strategies vary depending on the period of trades. There are short-term approaches that allow you to trade within a period from one day to several weeks, medium-term techniques used to trade from several weeks to months, and long-term approaches that imply holding trades for at least one year. These strategies all have different criteria.

When applying a trading strategy, you should remember that it should be customized according to your subjective data. Any trading strategy is a set of general rules, but the market conditions change frequently. According to data from Robert Shiller, the market is seldom average. For instance, although a study showed that the S&P 500 grew by 6.9% annually (after inflation and including dividends) from 1871 to 2019, only in 28 years did the index show a return of 0-10%. There were double-digit gains in 74 years and double-digit declines in 23 years.

Let’s consider the most outstanding short-term trading approaches.

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1. Scalping

You shouldn’t be surprised that the list begins with this trading strategy. Scalping can be called the king of short-term trading approaches. The idea is quite simple: you need to open many small trades within a trading day to gather the rewards at the end of the day.

Which time frames should a novice trader choose?

As scalping means fast trading, scalpers set buy and sell positions at predetermined levels and follow certain steps. Usually, several trades are made within several seconds. This approach is mostly based on technical tools, including chart patterns and indicators.

Scalpers are supposed to spend lots of time in front of a monitor, as the trades are small. It’s vital to catch signals of price direction to close a trade with minimal losses.

Keep in mind that small positions don’t guarantee reduced risks. Scalping doesn’t contain overnight fees that may occur if you hold trades overnight. However, a trader maintains numerous trades within a day and deals with fees for each of them. Losses can even outperform gains.

Scalping may be a complicated strategy for beginner traders, as it requires quick actions. However, if you have experience and feel confident, scalping may be a good approach.

2. Day trading

Day trading (or intraday trading) is another way to open short-term positions. This approach works for any asset on any timeframe. Unlike scalping, day trading is an easier strategy that can be used even by newbies.

The name of the strategy explains its idea — open and close trades before the market closes. Thus, a day trader doesn’t bear possible overnight fees. Trades are usually open on timeframes from 15-minutes to 4 hours. Although the strategy name includes “day,” a daily chart is just used to check some technical points, including longer-term market trends. The 1-hour chart is widely used by traders to analyze market fluctuations and decide on entry and exit points.

The day trading approach is slower than scalping. Day traders aren’t supposed to open numerous trades within a day. It’s even possible to open only 1-2 positions if you trade on higher timeframes, including 1 to 4 hours. Thus, a trader has more time to make decisions. Moreover, day trading lowers the level of risk compared to scalping.

3. Swing trading

Though it’s applied to trades held from several days to several weeks, swing trading can also be called a short-term approach.

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Swing trading may include fundamental factors, as trades are in place for at least several days. However, key signals for this strategy are received from indicators and chart patterns.

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Swings occur when the price changes its direction. A change in the direction is mostly determined by chart patterns, as well as support and resistance levels. The idea is to predict upcoming price movements and keep the position open until the pattern stops working.

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4. Pullback trading

A pullback strategy is another approach for trading within a short-term period. A trader should determine a solid trend on the price chart and wait for the price to move in the opposite direction to the current trend. For instance, if there is a bullish trend, the price is expected to rebound from the resistance and move down. However, this fall isn’t expected to be long-term, as the overall trend is bullish. Thus, a trader waits for the price to rebound from the support level to enter a long trade.

As trading is based on trends, technical tools are a vital part of the strategy. To be sure the pullback is reliable, it’s recommended to wait for at least two consecutive highs in the uptrend before a pullback — and two lows if it’s a downtrend.

5. Money flow index

Another strategy that can be used by traders who trade for a limited period is the strategy based on the money flow index (MFI). This is an indicator that is mostly used to determine price volume. It can also reflect overbought and oversold conditions. When the asset is overbought (the indicator is above the 80 level), a trader can expect an upcoming price decline. A short position should be open as soon as the indicator falls below this level. Vice versa, if the asset is oversold (the indicator is below the 20 level), the price may correct up soon.

Summing up

It doesn’t matter what strategy you apply. You should always remember that there is no perfect one that will guarantee any returns. Firstly, every strategy should be customized according to your funds, the risks you can bear, your experience, and the time you are ready to spend for trading. Second, market conditions change constantly. Thus, it’s impossible to determine accurate steps that would work in any market environment.

No strategy can guarantee a 100% correct outcome of the trade.

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