Short-term trading is one of the most popular trading approaches adopted by retail traders because it gives you instant gratification. Our team at Trading Strategy Guides likes to keep the trading strategies simple, and in this article, we’ll demonstrate how to turn a simple trade principle into the best short-term trading approach you can have. You can also read our updated post for the best short-term trading strategy.
If short-term trading is not your thing and you position yourself on the opposite side of the trading strategies spectrum, like being a swing trader we encourage you to take a look the 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 anytime modify it and add some indicator to filter some of the false signals. The best short term trading strategy is a pure price-action strategy, but if you want to use indicators you need to know how to choose the most accurate indicators for short term trading. Our team at Trading Strategy Guides has 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 strategy this short term trading strategy?
We’re going to simply use a 20-period moving average that can be easily found on most Forex trading platforms.
So, let’s move forward with the best short term trading and why not some 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)
Our first short-term trading tip is that 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 that is derived from a very 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 that utilizes a 20-day breakout of the price. If the price break to a new 20-day high, one would buy, and conversely, if the price would break to a new 20-day low, one would sell (see Figure below). The main disadvantage with this strategy is that it’s losing 80% of the time.
That’s quite bad, wouldn’t you say so?
What we did next is to reverse this trading system and turn it into the best short term trading strategy with over 80% accuracy. As a short-term trading tips, you can use this principle and reverse any losing strategy but 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.
Let’s move forward and get started explaining 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 quite simple. Each time the market is making a daily low you can start counting. The rule of thumb is that 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 and start all over again when the market makes its first new daily low.
Let’s now 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 because we don’t want to pick tops and bottoms, we feel more comfortable to enter the market once the price confirms us it’s ready to reverse.
Let’s move forward now and define our entry point, which brings us to the 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 we break above the 20-day moving average you 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, which 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, then this means trouble and 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 which is why you don’t want to be any more in this trade. This is the best short term trading tips the market can give you if you listen to the price action.
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 because 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 our profits and 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.
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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