Short-Term Stock Investing Strategies

April 6, 2009,

Most financial experts would tell you that short-term stock investing is best left to experienced investors. Because stocks can be so unpredictable in the short-term (which in the most extreme case includes day trading) they can be a bad choice for short-term investors. Short-term stock investors need to have nerves of steel and the ability to monitor their stock portfolio closely as small price fluctuations can make the difference between profit and loss. That said, if you’re considering trying short-term stock investing, you will want to think about the preparation process and some strategies for consideration.

Preparing for Short-Term Stock Investing

The short-term stock investor should start by conducting heavy research into the companies under their consideration and the past performance and trends of those stocks. It is also critical to set a profit goal and a loss limit for each stock position. Building and adhering to an overall strategy can help keep an investor on track and away from emotional decisions.

Short-Term Stock Investing Strategies

If you do decide to try short-term stock investing, these are two strategies with which you may want to become familiar:

Momentum Trading is a stock market trading strategy in which the trader focuses on stocks that are moving considerably in one direction on high trading volume. The idea behind momentum trading is that when the stock price is not volatile, you can ride the up-trend until the trend breaks. Momentum traders must execute their plans with extreme discipline. This requirement makes short-term momentum trading a difficult undertaking for many investors.

More about momentum trading for short-term stock investing

Contrarian Investing is a stock market trading strategy in which the investor looks for over-reaction by other stock market investors and reacts accordingly. The contrarian approach relies on the belief that stocks are not always priced efficiently, presenting significant opportunity to those investors who recognize these opportunities. If, for example, a company announces bad news regarding earnings, a change in management, or something else along those lines, the stock market might over-selling. A contrarian investor would recognize this opportunity and acquire the stock at its new, reduced price.

More about a contrarian strategy for short-term stock investing


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.


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