How to Trade Stocks for Short-Term Gains
Trading stocks for short-term gains is known as day trading. The buying and selling of stocks multiple times throughout the day can provide small gains consistently throughout the day. However, to make money doing this, it typically requires some courage, but more importantly, a large amount of capital. To make any profits, large amounts need to be thrown at one stock so that when it does rise, the money can be pulled out for a big gain.
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Instructions
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Find the correct entry point. To do this, pay attention to the liquidity and volatility of the stock. Liquidity is how much is traded in a day. The higher the liquidity, the more shares that are traded daily. Volatility is the daily price range. The higher the volatility, the greater the chance for profits--and losses.
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Using one of the online stock brokers (e.g. E*Trade, Scottrade), purchase the stock at the right entry point. With day trading, it is important to deal in much larger amounts of money. Investing $100 in a day trade won't turn into a considerable profit due to day trading. Therefore, investing $1,000 or more is an effective way of profiting substantially.
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Determine your method of getting out. The first is known as scalping. This means that the minute the stock price goes over what you paid for it, you sell it. This means that if you bought the stock at $5.27 and it goes up to $5.32, you sell. It might only be 5 cents per share profit, but if you have 1,000 shares, it's a $50 profit.
The next method of getting out is known as daily pivots, or when an investor tries to calculate what the stock's high and low will be. They purchase at the low and sell at the high. By understanding how the stock's liquidity and volatility work, an investor can make a safe investment here.
The final method is known as momentum. Here, the investor buys the stock when press release hype boosts its price, then sells once others get involved and it crashes and burns later. The reason for this is the stock begins to get hyped and rises tremendously. By getting out before it rises too high, the investor ensures that they won't miss out when the stock suddenly crashes back down.
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Get out based on your strategy. Because you're day trading and making small profits sporadically throughout the day that add up to one larger paycheck, it is important to get out based on your investing strategy. If you are scalping and the stock enters the profitable zone, be disciplined and sell. Don't get greedy and "hope to make more." If your strategy works, use it effectively. Sell when your strategy dictates that you should sell.
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