Short Term Trader

On the page that discusses the type of investor your are, I mention that you can either be a day trader, short term trader or a long term investor.

This page discusses the short term trader.

So who is exactly is a short-term trader?

It is a trader who holds positions for days or weeks.

It is a trader who holds relatively small positions, and trades relatively less volatile range patterns.

You become adept at creating profit opportunities that can be exploited with minimal risk. You set clear limits (stop and gain limits) and only play tried and tested strategies.

One of the most important things (apart from price and volume), that you must understand are the different Stock Market Stages.

EVERY stock goes through four phases.

Here is a diagram that illustrates these four stages.

I must caution you though - I am not the best of artists!

Phase One

This phase shows the stock trading sideways. It a follow through of the decline in phase four. If you are using an indicator like the moving average (MA), the 30 day moving average will tend to flatten out. You may also see selling volume as investors are tired of waiting for the stock to trend up.

This is where your patience as a trader comes into play.


Phase Two

This is where the stock breaks out of this sideways or consolidation phase one and begins it upward trend. This uptrend lets you know that traders are bullish on the stock.

This my friend is when you buy! You will make your most $$ in this phase.

Phase Three

This is the phase where the stock price begins to level out and the stock trades horizontally. You may see volume spikes and it is at this phase that you take your take profits.

Phase Four

During this phase the pull back happens and the stock begins a downward trend. If you look at the moving average indicator, it remains above the stock as the price drops.

You should never get caught in phase four, unless you are willing to lose $$.

Want to see an example?

Here is a stock trading through the four phases.

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