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Friday, July 10, 2009

Requirements of Short-Term Trading

Short-term trading strategies, especially day trading and swing trading, demand high levels of discipline and concentration. These strategies can work in any market condition for any instrument (stock, forex, futures, funds, etc) but each of these instruments/markets needs different strategies and approaches. There are 5 basic requirements for implementing short-term trading strategies.
  1. Liquidity – The instrument/market should liquid enough that you can buy/sell whenever you want.
  2. Volume – The stock or currency pair should satisfy a minimum daily trading volume.
  3. Trending – The instrument/market should show at least a short-term trend in either direction.
  4. Large position sizing – As you are trading for a small price differences, you should have comparatively large position size than long-term traders.
  5. Sophisticated trading system – When trading for small price differences, you cannot rely solely on your brain, you should have systems that helps you in decision making.
For being successful with your day or swing trading practice you need much more than these basic requirements, which include 1) a sound trading plan which tells you what to buy/sell, when to buy/sell, target which profit levels and where to place stop-losses. 2) Control over your mind – so that the greed never overtake the truth, 3) Good trading education, 4) good money management skills and 5) risk tolerance.

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posted by Daniel Pipitone at 5:41 AM

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