Controlling The Risk in Short Term Trading

There are two types of trading strategies that are mostly used by traders –short-term trading and long-term trading. Let us further discuss short-term trading in.

What is Short Term Trading

The short-term trading strategy takes advantage of small price movements and it can last for a few minutes to several days. The most important factor to be able to succeed with the trading strategy is by understanding the risks that it involves. Not just the rewards but knowing the risks means knowing how to minimize them. You should be able to spot any short-term opportunities that may come unexpectedly and must know how to protect your trading account from totally ruining your account.

There are some concepts that need to be understood and even mastered to successfully accomplish your goals in short-term trading. It is also important to understand the fundamentals of short-term trading because it will determine your win or loss rate.

How To Recognize Potential Trade

It is very crucial to recognize the ‘right’ trade because it will help you identify which one to avoid and which one you should choose. Most investors think that as long as they watch the news every day and stay updated with the financial pages, they will remain on top of everything that’s happening in the market. That is somewhat a misconception. The truth is, during the time that you have most likely heard about the news, the market has already started crashing. So what’s the best thing you should do?

Keep An Eye On The Moving Averages

The average stock price over a certain period of time is called the moving average. Commonly used time frames in moving averages are 200, 100, 50, 30, 20, and 15 days. You must be able to identify if the stock is going down or going up. If you want to find a stock for short-term trading, you should pick the one with a declining or flattening moving average.

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Knowing More About the Overall Cycles and Patterns

The markets are trading in cycles. That being said, you must keep watch of the calendar at certain times. From 1950 until 2021, the gains acquired in S&P 500 all came from the time frame of November to April. During the months of May to October, the movement is static.

Getting To Know The Market Trends

If there is a negative trend in the market, it is wise to consider shorting. On the other hand, if it is positive, you should buy more and do very little shorting. If you see that the overall market is totally against you, chances are, you might not have a successful trade.

Controlling the Risk In Short-Term Trading

Trading is always accompanied by risks and losses. You might not totally eliminate it but controlling the risks will make you a successful trader. Even for short-term trading in MetaTrader 4, it still involves risks. Therefore, it is necessary to control the risks, whilst maximizing the profits and returns. When it comes to controlling the risks, the best tools to use are the sell stops and the buy stops. They provide great market protection against huge losses and risks.

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