Short Term Stock Trading Strategies

Short Term Stock Trading Strategies – Let’s talk about trading strategies and in this article I share 5 trading strategies that I use or have used in my own trading. Each trading strategy can be traded on its own and you can also combine different ones.

Every trading strategy consists of multiple influencing factors to ensure stable signals. Of course, other triggers and criteria can be added to this approach. If you like this approach and are interested in learning about my current trading strategies and getting my trade setups, be sure to check out our Master Class where we currently have a special offer.

Short Term Stock Trading Strategies

Short Term Stock Trading Strategies

I use a 14-period RSI indicator as a trend tiebreaker. When the RSI is above the 50 level (orange line), look for only bullish signals. And when the price is below the 50 level, scan only for bearish crossovers.

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1. The short-term moving average crosses the long-term MA. This is a bullish signal because it means short-term prices are rising above longer-term prices. It signals a bullish impulse.

Short Term Stock Trading Strategies

2. The RSI is trading above the 50 level, which means it would be good to follow the bullish crossover signal. RSI is therefore a filtering tool. When the moving averages turn into a bullish signal, but the RSI is below the 50 level, the trader will not open long trades.

3. The next transition of the moving average to the bearish side happened here. Although the moving averages were close to crossing before, you should wait for a confirmed crossing.

Short Term Stock Trading Strategies

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Of course, you can add more criteria to these two. For example, a trader can add trend lines or horizontal breakouts to the strategy. Or even add a longer-term moving average as an additional trend direction filter.

In point (1), moving averages crossed bulls. The price has traded above moving averages before, but you have to wait for a crossing of the moving average. When the moving averages crossed, the RSI was already above the 50 level, which confirmed the bullish signal.

Short Term Stock Trading Strategies

By now you can probably follow the system and understand how the bearish setup was created in points 3 and 4.

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I don’t recommend just blindly trading with this approach. Instead, try it out on an on-demand account and get a feel for how the components work together. You may want to make changes or add other tools to this approach.

Short Term Stock Trading Strategies

Also, don’t forget to read my latest article on stops, targets and take profit when it comes to choosing the right parameters for your trading approach.

I used to trade spikes a long time ago. To do this, I set the Bollinger Bands(r) to 2.5 standard deviations to create a wider channel. With a wider channel, the price jump through the channel is a more meaningful and significant event. You can even set it to 3 standard deviations to filter out more price action and find bigger peaks.

Short Term Stock Trading Strategies

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Just a spike is not enough and I recommend adding a candle type filter over it. A bounce that accompanies a engulfing candlestick or pinbar usually offers more stable trading scenarios.

In the example below, the price made a sharp jump through the upper bar and immediately retreated back into the channel. The fact that the price closed inside the channel is another key component. During strong trends, price sometimes closes outside or very close to the outer bands. You should avoid such situations and wait for complete rejection.

Short Term Stock Trading Strategies

In this scenario, the top happened to be a pinbar and therefore provided at least 2 converging signals: channel top + candlestick confirmation.

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In the next scenario we see a bounce, a headline and also the merging of a previous support zone.

Short Term Stock Trading Strategies

The hardest part of using multiple influencers is getting deals where you’re missing just one. Let’s say you see a big spike, but no other influencer. In such scenarios, you should skip the deal even though it may look very tempting. But if you have built a system that requires additional confluence signals like a candlestick pattern and maybe even a signal at a previous support/resistance area, you should follow the rules and skip the trade. This is where many amateur traders can’t sit idly by, but it is extremely important to trade only when you have a complete trading signal.

So write down your trading rules and put them in a place where you can see them at any time of the trade. It’s a constant reminder of what you’re looking for.

Short Term Stock Trading Strategies

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Divergence is one of my favorite tools and I have used divergence in several of my trading strategies for years. I have discussed the concepts of difference extensively in other articles.

In the image below, the price made a quadruple retracement at point 1. The price made 4 consecutive highs (2), but the RSI made 4 consecutive lower lows.

Short Term Stock Trading Strategies

As of this writing, the price is making several consecutive lower lows (3) and the RSI is making higher lows (4). This indicates that the trend is losing strength.

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Of course, this is not enough to enter a trade, since the price can remain in the trend for a long time, although it shows a deviation. As with all trading strategies, we need to add additional confluence factors to the divergence strategy.

Short Term Stock Trading Strategies

The screenshot below shows the same scenario from above, but this time I added a 40-period moving average and trendlines; We will discuss trend lines as strategy 5 in this article.

The length of the moving average plays a big role here and you can see that the price has broken the moving average several times during the uptrend on the left. Therefore, a longer-term moving average would be a better choice for such a volatile market.

Short Term Stock Trading Strategies

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The trend line in point (1) worked well and it was only when the trend line was broken that the trend actually turned bearish.

The current trend line at point (2) has not yet been broken and therefore no bullish signal has been provided. As mentioned, divergence alone is not a strong enough signal, and the trendline confluence factor works well in this scenario. Now the trader would simply wait for a strong break above the trendline before looking for buying opportunities.

Short Term Stock Trading Strategies

Horizontal breakouts are one of my favorite trading concepts and especially for new and struggling traders it is usually much easier to spot horizontal levels as they are very objective.

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A good horizontal plane is confirmed after the second touch point and with each subsequent touch the plane gradually weakens.

Short Term Stock Trading Strategies

In the image below, the horizontal resistance level at point (1) has about 5 points of contact. Such a level has a high probability of breaking. What’s more, right before the breakout, the price stayed “flat,” meaning sellers couldn’t push the price down and buyers kept coming into the market. In my trading, I call this concept a “rebound lower” and it often indicates a high probability of a breakout.

Once the price breaks out of the sideways range, the trader will wait for short consolidations that allow him to draw horizontal levels at the top. Points (2) and (3) are great examples here. Such jam periods are often used to time trend-following entries, and I’ve talked about this in my pullback strategy guide in the past.

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To improve the robustness of trading signals, a moving average can be added to the chart as shown in the screenshot below.

The moving average acts as a filter for the direction of the trend and one would only look for trades in the direction of the moving average.

Short Term Stock Trading Strategies

At point (1), the price crosses the moving average and the trader will start looking for bullish opportunities. Such trend following scenarios occurred in points (2) and (3) as the price consolidated sideways where it was possible to draw a horizontal resistance level at the top. During these sideways phases, the price fluctuated briefly and the breakout signaled a continuation.

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At point (4), the price crossed below the moving average and also broke out of a sideways range that offers the top of the uptrend. Often such top patterns also show divergence signals and the RSI indicator can be added as a third confluence factor.

Short Term Stock Trading Strategies

At point (5), the short sideways consolidation broke with a horizontal support level and since the price was below the moving average, the trader would look for bearish opportunities.

At point (6), the market formed a bottom pattern with a horizontal resistance level and the breakout occurred at the same time as the crossover moving average.

Short Term Stock Trading Strategies

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The screenshot below shows a general primary uptrend and within the uptrend the trader will look for buying opportunities.

Trendlines can be used to effectively identify consolidations. When you can connect 3 or more highs and find a downward sloping trend line in an uptrend, a bullish breakout often signals a continuation of the trend.

Short Term Stock Trading Strategies

All three points in the screenshot below show such periods where the sideways consolidation is defined by a downward sloping trendline. And each time the eruption signaled a sequel.

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Moving averages are an ideal filter for trendline strategies. Moving averages work

Short Term Stock Trading Strategies

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