I remember reading in a personal finance book that the stock market is like a perfectly predictable person over the long term, and like addict suffering from severe withdrawal in the short term. The comparison was made to establish the fact that it is near impossible to predict what direction the market is going to take in the short term, because it can go in any direction, and be influenced by absolutely anything. This volatility is seen by some as a risk that is not worth taking, and by others as an amazing opportunity to make some quick money. Where most people fail when it comes to making money in short term trading, it is that there is a learning curve before you have enough knowledge to make the quick money. In other words, the quick money is not really that quick. You are not going to turn into an expert stock picker overnight. You are going to need a pretty good understanding of how the stock market works, and you also have to keep your emotions in check and not let greed make you throw caution away. The first thing you will have to learn is how to differentiate stocks. Since you are dealing with trading for the short term, then there is a specific segment of the market that you are targeting. Not all stocks will fall into it. Specifically, some stocks are better suited for long term investing that for short-term trading. That does not mean you should not own them, just that they should not be your primary focus. You should be studying specific stocks or sectors and see how they behave over short periods of time. Making money in short term trading relies on paying attention to the criteria:
Volatility. What is the behavior of the stock market in general? Is it a bull market, a bear market, or is it stagnant? The more movement there is in the overall market, that means the more stocks are behaving in a volatile fashion. Big price swings, if detected early enough, can yield big profits if you know what direction the particular stock or sector is headed.
Volume. You always want to trade stocks with good volume, to protect yourself against the risk of not being able to enter or exit a market due to lack of buyers or sellers. You can also track the number of buyers/sellers over time to detect any early signs of interest or disinterest in a particular stock.
Trend. It is a good idea to look at historical charts of the stocks you are interested in, or even specific industries. Many of them behave in a cyclical manner. So there is a great money making opportunity if you can spot a trend early on and position yourself so that you profit from it.
So short term trading is not something you jump in and start making money immediately. You need to have a plan that is laid out in advance, and that guides you when you pick your trades. Your plan should spell out how much you expect to make from a specific transaction, and also the maximum amount that you can stand to lose before you cut your losses and move on.
Short term trading is also referred to as market timing, and there is a very simple reason for that: how much money you make or lose on a single transaction is largely determined by your timing when entering and leaving a market.
Nobody enters the investing field expecting to lose money, but the successful traders know that they cannot make the right call every single time. Since they know they will make mistakes, they set specific goals per transaction. This ensures they do not let emotions and greed ruin their investments. Emotions and stock trading do not mix very well.
The last piece of advice for short term traders is that you cannot afford not to follow what is going on in the stock market. Just like a lawyer keeps abreast of the developments in his field, you should too be on top of the stock market news, so as to be better armed to make good, profitable decisions.