Mastering the essence of short-term trading: How to accurately determine buy and sell timing

Short-term trading (also known as day trading) attracts many investors with its rapid entry and exit pace. An order may be completed within minutes or held for several days. This trading method offers high profit potential, but risks should not be underestimated. To achieve consistent profits in short-term trading, the key is to master how to accurately identify buy and sell opportunities while effectively controlling risks.

The Essence and Characteristics of Short-term Trading

Short-term trading refers to market operations with an entry and exit time span of several days to weeks. This type of trading is highly speculative, with relatively higher risks, but also provides more profit space. Unlike long-term investing, short-term traders do not focus on the fundamental quality of listed companies and may even operate on highly volatile assets, aiming to follow market hotspots and capture price differences for profit in a short period.

Win rate is the decisive factor for short-term profitability. Investors must analyze each trade’s profit probability with a calm mindset. Many experienced short-term traders use backtesting software to verify their trading systems to ensure strategy feasibility.

Three Levels of Short-term Trading Opportunities

Primary Opportunities: Significant fluctuations in trend segments

The most valuable short-term trading opportunities occur during high volatility, long-lasting trends that are easy to identify. These opportunities usually appear in clear trends, with strong buy and sell intentions, and relatively controllable risks.

Secondary Opportunities: Rhythm control within oscillation ranges

When market fluctuations are small but occur frequently, these are also tradable opportunities. Mastering the rhythm of volatility and accumulating multiple small profits can also achieve stable returns. These opportunities are usually found within wide oscillation ranges.

High-Risk Opportunities: Markets with intense volatility

Due to major news events, stocks may experience overbought or oversold conditions. At this time, volatility is extremely intense. Without solid technical skills, traders are prone to being trapped or facing margin calls. Caution is advised.

Four Steps to Identify Short-term Trading Opportunities

Step 1: Observe Moving Average System

Moving averages are among the most widely used technical indicators. Changes in the direction of moving averages can effectively predict price trends and determine dynamic support and resistance levels. When prices are above the moving average, it indicates a bullish trend; vice versa. The divergence of moving averages can visually reflect the strength comparison of market forces.

Step 2: Understand the Four Market Cycle Stages

Stage 1: Range-bound Oscillation

In markets without a clear trend, prices are often confined between predictable daily highs and lows. Bulls attempt to push higher, while bears resist immediately, causing prices to fluctuate in equilibrium.

The final result of this stage is usually a breakout. The longer the range-bound oscillation lasts, the larger the subsequent breakout tends to be. Be aware that some market participants may create false breakouts. Traders can observe changes in trading volume to determine whether the price discovery process is genuine, avoiding market manipulation.

Stage 2: Breakout Initiation

When the market breaks inertia and enters a breakout phase, volatility transforms into a clear upward or downward trend. Depending on the strength of fundamental changes, breakout forms vary:

• Straight Rise: When fundamental factors change dramatically, prices may rise rapidly in a straight line and then stabilize. Traders can either enter early or wait and see.
• Peak and Trough Rise: When breakouts are not caused by obvious fundamental changes, prices do not follow a single trend but create new highs during upward movements, with each pullback forming higher lows.

A key feature of this stage is the continuous upward movement of the moving averages.

Stage 3: Pullback and Adjustment

After reaching a peak, prices begin to return to previous levels. This stage can be divided into two scenarios:

• Crash-like Drop: When fundamentals change significantly again, the market reacts swiftly, and prices drop several percentage points in an instant.
• Volatile Decline: Prices do not fall in a straight line but move downward with resistance at each level, forming peaks and troughs.

Stage 4: Uncertainty Period

After the bulls and bears complete their moves, the market enters an uncertain state, requiring a new cycle to start. This phase features increased volatility, making technical indicators less reliable for accurate prediction. It is advisable for investors to stay away from the market during this period.

Step 3: Accurately Grasp Market Trend Direction

Trends can be long-term, short-term, upward, downward, or sideways. After identifying the trend direction, follow the trend: consider shorting in a downtrend and going long in an uptrend. When the overall market trend contradicts your trading direction, the probability of success significantly decreases.

Step 4: Establish Correct Trading Mindset

Many losses are attributed to poor mentality. The same strategy may perform well in simulated trading but result in frequent losses in real trading. The key lies in whether the trading mindset can be effectively executed. A correct mindset should focus on:

• Absolute control of emotions: Avoid fear or greed caused by market fluctuations
• Establishing a capital management system: The foundation of trading stability
• Correct understanding of losses: Losses are a normal part of trading
• Prioritize risk management: Risk control should always take precedence over seeking profits

Key Points for Selecting Short-term Trading Stocks

The core secret of short-term trading is to amplify returns through high turnover rates, so the fundamental quality of the stock itself is less important. Since short-term trading can go long or short, the focus is on capturing price fluctuations.

Look for assets with three characteristics:

Has themes and hotspots: Market topics or recent news affecting the stock, often leading to price volatility

Adequate trading volume: Active buying and selling, strong liquidity, facilitating quick entry and exit

Sharp price fluctuations: Large price changes, providing ample profit opportunities

Typically, during periods of intense market volatility or when companies release important news (such as earnings reports or major events), stocks meeting these criteria are more likely to appear.

Technical analysis outweighs fundamental analysis

Short-term operations are not necessarily related to the company’s long-term fundamentals. Even promising companies may experience overextended gains and corrections or enter consolidation phases, losing volatility. Therefore, short-term trading relies more on technical analysis, identifying “resistance” and “support” levels for range trading or following a trend until the next key position is reached.

Five Practical Strategies for Short-term Trading

Strategy 1: Accumulation at Low Levels

When the stock price begins to rise but the increase is modest, and the moving average system is diverging upward in a bullish arrangement with a daily turnover rate around 3%, this signals an entry point. Wait for the price to retrace to the 5-day moving average and buy decisively.

Strategy 2: Contrarian Strong Positioning

When the overall market is declining, but certain stocks rise over 5% against the trend with significantly increased volume, these stocks have good short-term potential. Consider buying at the close of the day or during the next day’s pullback. The saying “It won’t fall when it should, it will rise” applies here.

Strategy 3: Rapid Rebound Positioning

Stocks that have experienced a quick upward surge and then suddenly drop sharply with decreased volume, especially when the decline exceeds half of the previous rise, are ideal for a rebound. Enter immediately.

Strategy 4: Initiation Phase Entry

When monthly and weekly K-lines are at low levels, accompanied by volume accumulation, with the 3-day moving average rising with volume, and a volume-based golden cross appearing on the 60-minute chart, indicating continuous volume and large buy orders, the stock is entering a hot sector initiation phase. Prepare for short-term entry.

Strategy 5: Strict Stop Loss and Take Profit

If you make a wrong judgment and buy at a low point but the price continues to decline, immediately cut losses. When the price reaches your psychological target, take profits immediately—do not be greedy. Time is a friend to short-term traders but also amplifies risks, so every trade must have a clear entry and exit plan.

Core Concepts of Short-term Trading

The market always looks forward, reacting to current events. All fiscal policies, global economic environments, political factors, etc., influence market trends. At this point, the importance of technical analysis becomes evident.

As a short-term trader, remember the following:

1. Short-term volatility is difficult to predict completely
2. Risk control is the top priority
3. Profits only occur when prices fluctuate significantly in favorable directions
4. Be skilled at identifying buy and sell opportunities, effectively controlling risks, and applying technical analysis correctly

The secret to success in short-term trading lies in recognizing what others do not see, grasping what others do not hold, and maintaining disciplined risk management and precise timing to achieve stable profits amid market fluctuations.