Short-term trading is one of the most popular trading approaches adopted by retail traders. This is because it gives you instant gratification. Our team at Trading Strategy Guides enjoys keeping our trading strategies simple. In this article, we’ll demonstrate how to turn a simple trade principle into the best short-term trading approach. Below you can read our updated post for the best short-term trading strategy.
Is short-term trading not for you? Do you position yourself on the opposite side of the trading strategies spectrum, such as a swing trader? If so, we encourage you to read, MACD Trend Following Strategy - Simple to learn Trading Strategy.
While this short-term trading strategy can be used by only focusing on the price action short-term trading tips, you can modify it any time. Add indicators to filter some of the false signals. The best short-term trading strategy is a pure price-action strategy. If you want to use indicators, you need to know how to pick the most accurate indicators for short-term trading. Our team at Trading Strategy Guides put together a step-by-step guide with the most popular Forex indicators here, The Big Three Trading Strategy.
What indicator are we using for this short-term trading strategy?
We’re going to simply use a 20-period moving average. The moving average can easily be found on most Forex trading platforms.
So, let’s move forward with the best short-term trading. We will also review a few short-term trading tips that will strengthen your forex trading knowledge. We also have training on Trend Line Drawing with Fractals.
Steps For the Best Short Term Trading Strategy
(Rules for Buy Trade)
Let's start off with our first short-term trading tip. In order to understand price action, you have to understand the underlying cause that makes price action patterns work. This short-term trading strategy uses a specific pattern derived from a well-known strategy used by Hedge Funds.
Let’s just simply put it: the best short-term trading strategy is derived from the Turtle trading system. This system utilizes a 20-day breakout of the price. If the price break to a new 20-day high, one would buy. Conversely, if the stock prices would break to a new 20-day low, one would sell a stock (see Figure below). The main disadvantage of this strategy is that it loses 80% of the time.
That’s quite bad, wouldn’t you say so?
What we did next is reverse this trading system. We turned it into the best short-term trading strategy with over 80% accuracy. With short-term trading tips, you can use this principle and reverse any losing strategy. Although, make sure you’re backtesting the strategy and see if you can come up with a profitable system or not. Also, read the simple yet profitable strategy, for more trading tips.
Let’s move forward and explain the short-term trading strategy in a simple step-by-step guide:
Step #1: Wait For the Market to Make a New 20-Day Low
The way you should count the lows is simple. Each time the market is making a daily low, you can start counting. The rule of thumb is you only count daily lows that are lower than the previous counted daily low.
A picture is worth a thousand words, so here you have an example:
In the above example, we pointed out, how to correctly count the Daily lows. As we can observe the market wasn’t able to make 20-day new lows, so we had to stop the count. We started all over again when the market made its first new daily low.
Now, let’s identify a valid 20-day low pattern and see how to correctly trade the best short-term trading strategy.
Please see the chart below:
Step #2: Wait For The Market to Break Above the 20-day MA
For the success of our short term trading strategy, this step is very important. We don’t want to pick tops and bottoms. We feel more comfortable to enter the market once the price confirms it’s ready to reverse.
Let’s move forward and define our entry point. This brings us to step number 3 of the best short-term trading strategy.
Step #3: Enter A Long Position When We Break Above 20-Day MA
As soon as you break above the 20-day moving average, buy at the market. The combination of the 20-day low pattern and the 20-day moving average is the secret to our powerful short term trading strategy. Incorporating the 20-day MA in your day trading system is one of the best short-term trading tips you can receive.
We got our entry, but we still need to determine where to place our protective stop loss and take profit orders. This brings us to the next step of our short-term trading strategy.
Step #4: Place the Protective Stop Loss Below the Swing Low Prior to the 20-day MA Breakout
The best short-term trading strategy employs a very rigid stop loss method. The obvious place to “hide” your protective stop loss should be right below the most recent swing low prior to the 20-day MA breakout. If the market breaks above the 20-day EMA, and it reverses and breaks below that swing low, this means trouble. It is reason enough to close the trade at a small loss.
Why? Because it signals the prevailing trend is still maturing and will resume. This is why you don’t want to be in the trade anymore. If you listen to the price action, this is the best short term trading tips the market can give you.
In the next short-term trading tips we will learn where to take profits:
Step #5: Take Profit at The 50% Fibonacci Retracement of the Prevailing DownTrend
The logical place to take profits is at the 50% Fibonacci retracement. Normally, that’s the first real target from where the market can reverse. We don’t want to take our chances and risk to lose more of profits. So, we’ll liquidate the entire position here for a nice profit.
Note** The above was an example of a buy trade… Use the same rules – but in reverse – for a sell trade. In the figure below you can see an actual SELL trade example using the best short term trading strategy.
We hope that this short-term trading tips will help you become a better trader. Like every other strategy presented here at Trading Strategy Guides, you have to use strict money management rules. This short-term trading strategy is a perfect example of how one can simply reverse engineer a losing trading system and turn it into a profitable system. Here You can learn on How to fade the momentum in Forex Trading.
If you want to learn more short-term trading tips on how to conquer the Forex market or any other market we highly recommend to spend no more than 5 minutes and read How to Profit From Trading- Make Money Trading Today! This article has attracted a lot of attention from our trading community.
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Short Term Trading Strategy – Trade Example
In the below example you simply have to follow the same Step #1 and Step #2 to help us identify the BUY/SELL trade setup and to correctly count the daily high/low, and followed Step #3 through Step #5 to manage the trade.
USD/CAD Daily Short Trade
EUR/USD Daily Long Trade
AUD/USD Daily Short Trade
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