Short Term Trading
Short-term trading refers to the trading of stocks and other securities over brief periods of time, such as a few weeks or months. Short-term trading should not be confused with day trading, where stocks are bought and sold within the span of one trading day. In general, those who practice short-term trading rely heavily on technical analysis and tools such as charts and graphs in order to make decisions about how and when to place a trade. This differs from a strategy of fundamental analysis, where an investor will research a company’s earnings, history, management, balance sheet, labor relations and other “fundamental” factors before purchasing or selling the company’s stock.
An investor who uses short-term trading has little practical use for fundamental analysis because of the time and effort involved in it. A short-term trader is much more concerned with where the price of a stock is at the moment, and where it is going in the near future. It is often easier for a trading novice to become familiarized with technical tools such as charts and algorithms than it is to learn what makes a company strong and therefore a good long-term investment. Because of this, short-term trading is very popular, especially in times when stock markets have a general upward trend.
One very common type of short-term trading is swing trading. This consists of buying a stock with the hope of taking a profit within a few days or weeks. The ideal environment for swing trading is when the market is not exhibiting any particular trend, but will go up for a few days and down for a few days, alternately. A swing trader aims to take advantage of these fluctuations, with no regard for the fundamentals of the underlying company, since these don’t normally change over a period of days.
Position trading involves holding a stock for a few months, or perhaps as much as a year. A position trader, as opposed to a swing trader, has a somewhat long-term outlook. In this case, fundamentals can be important to consider, especially if they indicate the potential for a rise in price which may not fully play out for months. While still considered a type of short-term trading, it is not usually subject to the level of risk associated with day trading or swing trading.