Mastering Short-Term Trading Entry Points: A Practical Guide

Short-term trading, also known as short-term speculation, refers to market operations completed within a span of days to weeks. This trading mode can bring substantial profits but is accompanied by significant risks. A single trade may be completed within minutes or held for several days. To profit from short-term trading, the key lies in capturing precise entry points while effectively managing risk exposure.

The Essence and Mechanism of Short-term Trading

What is short-term trading?

Short-term trading refers to market strategies with a short duration between entry and exit. Unlike long-term investing, short-term traders do not focus on the fundamentals of listed companies and may even trade assets with high liquidity but weak fundamentals. The goal of this trading mode is to leverage short-term price fluctuations for speculative profits, rather than sharing in corporate growth.

The risks of short-term trading are generally higher than other trading methods due to high operation frequency and short holding periods. The success or failure of trades depends on win rate—investors must calmly analyze the probability of profit for each trade. Many short-term traders use backtesting software to verify the effectiveness of their strategies.

Three Levels of Short-term Trading Opportunities

Identifying trading opportunities is a core skill in short-term operations. The opportunities provided by the market can be divided into three categories:

Primary Opportunities: Large Fluctuations

The most optimal trading opportunities have three characteristics—large volatility, long duration, and easy identification. These opportunities usually occur during the main phases of trending markets. When the market forms a clear upward or downward trend, price fluctuations are at their maximum, making it easiest for traders to profit.

Secondary Opportunities: High-Frequency Fluctuations

The market is not always turbulent. In markets with relatively mild but frequent fluctuations, traders who grasp the rhythm of volatility can also continuously accumulate gains. These opportunities exist within wide-ranging oscillation zones and require traders to have heightened technical sensitivity.

Risk Opportunities: Extreme Volatility

Under the impact of major events or news, the market may experience extreme overbought or oversold fluctuations. If traders lack solid technical skills and cannot grasp the rhythm, profits will be minimal and they risk liquidation. Such opportunities should be approached with caution.

Methods to Identify Entry and Exit Timing in Short-term Trading

Accurately identifying buy and sell points means traders can distinguish favorable from unfavorable trading opportunities. Many investors fall into a misconception—over-relying on news. In fact, when we see financial news, the market has already reacted. Therefore, traders need to prepare technically to seize opportunities at critical moments.

Tool 1: Moving Averages

Moving averages are among the most commonly used technical indicators. By calculating the average price over a period, they help forecast price trends and identify dynamic support and resistance levels. Moving averages are called trend indicators—when prices are above the moving average, it indicates a bullish trend; when below, a bearish trend.

Tool 2: Market Cycle and Pattern Recognition

Market movements follow identifiable cycle patterns, and mastering these patterns is crucial for short-term trading.

Stage One: Range-bound Oscillation

When the market lacks a clear trend, prices tend to oscillate between predictable daily highs and lows. Bulls attempt to push prices higher, while bears immediately exert resistance. If the price breaks below support, equilibrium forces push it back to a balanced state. Range-bound oscillation usually ends with a breakout. The longer the range persists, the more intense the subsequent volatility after the breakout.

Beware of false breakouts—some market participants create fake breakouts to deceive traders. Checking trading volume is key to judging the authenticity of a breakout.

Stage Two: Breakout

When the market breaks inertia and volatility begins to transform into a clear upward or downward trend, the breakout stage begins. Depending on the degree of fundamental change, breakouts can take different forms:

If there is a fundamental upheaval, prices may rise sharply and then stabilize quickly. Traders can either enter early or wait and see.

If the breakout is not driven by fundamental changes, prices will show a zigzag pattern with peaks and troughs, each higher than the previous, and each lower than the previous. Importantly, during this phase, the moving average continues to rise.

Stage Three: Pullback

After reaching a peak, prices start to revert to previous levels. The pattern of pullback also depends on market momentum:

If fundamentals deteriorate again, prices may fall rapidly, and bears will immediately establish positions.

If the pullback is slow, prices will form a series of peaks and troughs, gradually declining.

Stage Four: Uncertainty

After the bulls and bears complete their movements, the market enters a phase of uncertainty. The cycle needs to restart, but few can accurately predict the next move. This stage exhibits high volatility, and technical indicators often fail to provide reliable signals. Investors are advised to stay away from the market during this phase.

Tool 3: Trend Recognition

Trends can be categorized into long-term, short-term, upward, downward, or sideways. The basic principle is simple—shorting in a downtrend and going long in an uptrend. When the overall trend is unfavorable to the investor, the probability of successful trades drops significantly. Following the trend is the golden rule of short-term trading.

Tool 4: Mindset Management

Many attribute losses to poor mindset. Why is simulated trading often successful, but real trading frequently results in losses? The answer lies in: mindset determines execution. Correcting trading mindset involves:

• Emotional Control: Absolutely control greed and fear
• Capital Management: Scientific capital allocation is fundamental
• Loss Awareness: Properly understanding that losses are an inevitable cost of trading
• Risk First: Always prioritize stop-loss; risk management surpasses profit pursuit

How to Select Suitable Assets for Short-term Trading

The core secret of short-term trading is amplifying returns through turnover rate. This means the fundamental quality of the asset is not the main consideration, as both long and short positions are possible in short-term trading.

When choosing short-term assets, focus on the following features:

Theme Hotness: Market attention driven by trending topics or news attracting capital

Trading Activity: Active buying and selling, high liquidity, facilitating quick entry and exit

Price Volatility: Assets with significant price swings, providing ample profit space

Such assets often appear during increased market volatility or when companies release major news (e.g., earnings reports, restructuring information).

Importantly, short-term trading is not strongly related to a company’s long-term fundamentals. Even companies with strong long-term prospects may see mid-term corrections or sideways consolidation. Therefore, short-term operations rely more on technical analysis—identifying resistance and support levels for range trading or riding the trend until reaching the next key level.

Five Practical Strategies for Short-term Trading

Mastering the timing of entry is the most critical skill in short-term trading. The following five strategies cover common operational scenarios:

Strategy 1: Early Positioning in Bullish Phase

When the stock price begins to rise with modest gains, and the moving average system shows a bullish arrangement with divergence, and the daily turnover rate is around 3%, wait for a pullback. When the price retraces to the 5-day moving average, buy decisively.

Strategy 2: Contrarian Strong Entry

During a market decline, some stocks rise against the trend by over 5% with increased volume. These assets have strong short-term potential. Consider buying at the close of the day or during the next day’s pullback. There’s a market saying: “It won’t fall when it should, so it must rise.”

Strategy 3: Rebound After Sharp Drop

After rapid gains, stocks suddenly plunge sharply with decreasing volume—be cautious. When the decline exceeds half of the previous rally, enter immediately to catch a short-term rebound.

Strategy 4: Breakout from Low-Level Pattern

Monthly and weekly K-lines are at low levels with accumulated volume; the 3-day moving average is rising with volume; the 60-minute chart shows volume and a golden cross upward; continuous volume on the order book with large buy orders—these signals indicate the stock is in the early stage of a hot sector, and the timing for short-term entry has arrived.

Strategy 5: Stop-Loss and Take-Profit Execution

Mistakes are inevitable. If you buy at a low point and the price continues to decline, cut losses immediately. Conversely, when the price reaches a psychological level after rising, take profits promptly. Never be greedy and miss out on gains.

The Importance of Market Volatility and Technical Analysis

Markets always look forward, reacting to current events. Fiscal policies, the global economy, political environments—all influence the market. In this context, technical analysis becomes especially important. Through charts, indicators, and pattern recognition, traders can evaluate entry and exit points more objectively.

Core Cognition of Short-term Trading

Success in short-term trading requires establishing the correct cognitive framework:

1. Volatility is inherently unpredictable — Short-term oscillations are random; complete prediction is impossible.

2. Controlling losses is paramount — No matter how good the strategy, risk management is the top priority.

3. Profits come from directional volatility — Gains are only possible when prices fluctuate significantly in a favorable direction.

4. Time is a friendly resource — Having enough time to generate profits is essential; there’s no need to rush.

The ultimate key to short-term trading is: accurately identifying buy and sell opportunities, effectively controlling risk exposure, utilizing technical analysis tools, and aiming to maximize returns.