In the process of communicating with everyone, I've found that many friends are fond of short-term trading because the holding period is short, results come quickly, and it's quite exhilarating to engage in.

However, as a seasoned trader with over a decade of experience, I believe that short-term trading is the most challenging of all trading styles and is well worth a detailed examination.

Today, I would like to share my early experiences with short-term trading with you all. Towards the end of the article, I will provide some specific methods and strategies that are very close to real combat, and I believe they will be of help to you.

The article is quite lengthy, so I suggest you bookmark it for reading. If you find it rewarding, please give a like at the bottom of the article. Thank you.

1. The Pros and Cons of Short-Term Trading

There is no strict definition for short-term trading. When the market moves quickly, positions can be closed within the day; if the market moves slowly, it might take two or three days to close a position, and this all falls under short-term trading.

On the charts, I typically consider trades at the 5-minute, 15-minute, and even 1-hour timeframes as short-term trading.

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Advantages of short-term trading:

(1) Short-term trading has a short holding period with quick results. Humans naturally have a curiosity about the unknown and a desire to know the outcome quickly. Short-term trading aligns perfectly with human nature, making it easier to control one's mindset.

(2) The frequency of trades is high, which is exhilarating. Many people cannot stay idle when trading and would prefer to trade hundreds of times a day. This aspect of short-term trading is very much in line with human nature.The decline cycle of short-term trading systems is short, and the distribution of right and wrong outcomes is more uniform, which is conducive to execution. Sometimes, even during the same period of decline, a long-term trade may stretch out for more than a month, while a short-term trade only lasts two or three days. In short-term trading, the torment to human nature during the decline period is less severe.

Disadvantages of short-term trading:

(1) High trading frequency requires more time and energy, making it unsuitable for part-time traders.

(2) Frequent trading generates high transaction costs. Therefore, short-term traders should pay special attention to their own fees. I have seen many futures traders' accounts with fees increased by two or three times, or even ten times, which makes it difficult to make a profit.

(3) It demands a higher level of professionalism and attention to trading details. Short-term trading is more sensitive to market changes, and sometimes when the market changes, you don't have much time to think and must act decisively. People with indecisive personalities are not suitable for short-term trading.

Moreover, the tolerance for errors in short-term trading is relatively low. In long-term trading, the entry point does not need to be very precise; a difference of 5 or 10 points has little impact on the overall trade. However, in short-term trading, a difference of 5 or 10 points can be critical for profit and loss.

Therefore, short-term trading is a meticulous task, and all trading details must be very clear and understandable, which is conducive to execution. Short-term traders also need to possess the qualities of being careful, bold, calm, and decisive.

So, how can one quickly make profits with short-term trading? Next, I will share two strategies.

2. Strategy One: Choose markets with fast fluctuations and large amplitudes for short-term trading.We engage in short-term trading, which only requires capturing a small segment of market fluctuations. It doesn't have to be a major trend; as long as the market moves quickly and the amplitude is large, that's sufficient.

The faster the market fluctuates and the larger the amplitude, the easier it is to make a profit. For the same profit of 100 points, when the fluctuations are rapid and the amplitude is large, it might be achieved within a day. However, when the fluctuations are slow and the amplitude is small, it could take several days to achieve the same profit. The efficiency of trading is much lower, and the challenge to one's mentality is also different.

Therefore, the amplitude of the product is key to our profitability. We must selectively engage in short-term trading and not entertain the illusion of capturing all the profits. Let's look at two specific methods.

Strategy 1: Directly choose high-amplitude products for short-term trading.

Different products in the market have their own characteristics. Some products fluctuate quickly and have large amplitudes, while others fluctuate slowly and have small amplitudes. Before engaging in short-term trading, it is necessary to select the products and choose the more suitable ones.

For example, for the same breakout trading opportunity, a product with a large amplitude can create a greater space and thus achieve profits more quickly.

The 15-minute charts of the Euro against the US Dollar, the US Dollar against the Japanese Yen, and gold are three products I randomly selected on the chart.

These three products, as non-US dollar currencies, share commonalities in their trends. Before the European session starts in the afternoon, they simultaneously formed similar consolidation patterns that broke (the red neckline break in the chart). After the break, the space in which different products operate varies greatly.

On the left, after the Euro against the US Dollar broke out, the market moved 50 points.

In the middle, after the US Dollar against the Japanese Yen broke out, the market moved 150 points.After the right side gold broke through, the market moved 150 pips.

A similar pattern with a similar trend, also for short-term breakout trading, if a profit space of 100 pips is required, the Euro against the US dollar has only moved 50 pips and still needs to be held, while the US dollar against the Japanese yen and gold can already be taken profit.

We traders all understand that the sooner we secure our profits, the more at ease we feel, so choosing the right product makes short-term trading easier.

Moreover, if you choose a product with a slow trend, your holding time will be extended, which may occupy your position and reduce the utilization rate of funds, which will also affect the final profit amount.

Short-term trading is about paying attention to details and mentality, and a small detail can determine your success or failure, so don't be careless.

Strategy 2: Within the products with large fluctuations, select the stages with large fluctuations for short-term trading.

Even for products with large fluctuations, their fluctuations cannot be the same, and there will be alternations of large and small.

Careful observation will show that the size of the fluctuations is also alternating in cycles, why is this? Because the market is always switching between consolidation and trend, entering the consolidation phase with a contraction of amplitude, and after the consolidation phase ends, the trend phase with an expansion of amplitude. Sometimes after the contraction of the consolidation, even if there is no immediate major trend, due to the severe compression of space, the next trend will enter a larger consolidation range, and as long as the consolidation range becomes larger, short-term trading has the advantage of profit. It's like the tighter the spring is compressed, the greater the rebound.

So how to select the stage with large fluctuations?

It's very simple, put the k-line chart of a certain product to the daily level, when the daily k-line of this product continues to close with small daily k-lines, it indicates that the amplitude of this product is contracting, usually after a few days of contraction, the amplitude will expand, and will continue to operate with large amplitude for a few days.The red rectangles contain daily K-lines with very small amplitudes, and these K-lines typically have long upper and lower wicks. After three or four of these small-amplitude daily K-lines, there will be several daily K-lines with larger amplitudes. These larger-amplitude daily K-lines represent phases with greater volatility, making them suitable for short-term trading.

Precautions:

(1) In practice, you can select a few fixed varieties. When some of these varieties exhibit a contraction in amplitude and narrow-range oscillation, then you can start short-term trading. The specific cycle can be summarized by observing the patterns in the daily lines.

(2) Method 2 is an extension based on Method 1. Combining the two makes the trading more detailed, efficient, and more likely to generate profits.

3. Plan Two: Using Compound Interest for Rapid Profits

As I mentioned earlier, one of the great advantages of short-term trading is the short decay cycle, short profit and loss alternation cycle, and high frequency. These characteristics are very suitable for compound interest, and it is possible to achieve high profits quickly.

What is compound interest? It is when the principal generates profits, and the principal plus profits serve as the principal for the next transaction, which is essentially interest on interest.

Here is something to avoid in short-term trading:

The biggest taboo in short-term trading is the pursuit of high explosive profits. Many people want to quickly achieve high explosive profits in short-term trading, which is impossible and could likely lead to consecutive margin calls.

Therefore, if you already have a short-term trading strategy, what you should pursue is a high frequency + high success rate + low profit and loss ratio. In layman's terms, this means doing more trades, aiming for smaller profits, and using compound interest to grow the profits.How do we use compound interest to quickly make profits?

Let's take an example. Suppose our principal is 10,000, and we use 1% of the principal as the stop-loss amount for each trade, with a profit-to-loss ratio of 2:1, and we adjust our position every time our profit increases by 1,000.

Step one, trade with a stop-loss amount of 1% of 10,000, which is 100. When the profit reaches 1,000, the principal becomes 11,000.

Step two, trade with a stop-loss amount of 1% of 11,000, which is 110. At this point, the principal has increased, and the profit comes faster. After another profit of 1,000, the principal becomes 12,000.

Step three, trade with a stop-loss amount of 1% of 12,000, which is 120. Now, with more principal, the profit comes even faster. After another profit of 1,000, the principal becomes 13,000.

Step four, trade with a stop-loss amount of 1% of 13,000, which is 130. After another profit of 1,000, the principal becomes 14,000.

And so on, every time the principal increases by 1,000, we raise our position. As the principal grows, the time cycle for adjusting the position will become shorter, and the effect of compound interest will get better and better.

Some may wonder, what if we encounter a system decline cycle?

Firstly, we must ensure that our short-term trading strategy is profitable, even if the profit is not substantial. What used to feel like a small gain can be amplified into a larger profit through compound interest.

Secondly, the decline cycle for short-term trading is short. By following the compound interest approach, the capital curve will definitely be upward. Even if there is a decline, profits will soon follow.Let's take an example. Suppose your original short-term trading system's annualized return is 50% of the principal. If you apply the concept of compound interest, adjusting your position every time you make a 10% profit, your profit could reach 60% after one year, and in the second year, it could soar to 259%. Thus, the power of compound interest becomes more significant in the later stages of trading.

Without compounding, your two-year return would be 100%. With compounding, your two-year return could be 259%, which is the significance of employing compound interest.

At this point, some may wonder, if everyone is so smart and does this, where is there still money to be made in the market?

Firstly, most people in the market are still pursuing high profits and are not willing to patiently engage in compound interest, which is due to human nature.

Secondly, not everyone has the patience to build their own short-term trading system and stick to reasonable profit expectations.

These two points can essentially eliminate 90% of traders in the market.

There are several considerations for compound interest trading:

(1) Your original trading system's capital curve is upward, but the profit effect is not satisfactory, so you can use compound interest to enhance it.

(2) The higher the frequency of compounding within a unit of time, the better the final profit effect. For instance, depositing money in a bank for five years at an annualized rate of 3% with monthly compounding interest will yield more than if it were compounded annually.

(3) The longer the period, the greater the effect of compound interest, requiring traders to persistently maintain their efforts.Under the operation mode of compound interest, there is no need for the trading system to have a very high level of profitability. It is advisable to find a trading system that is moderately declining and has a healthy capital curve, which is beneficial for both the mindset and profitability.

Let me reiterate one more thing.

We engage in trading to make money, not to challenge high difficulty. Some details may seem very small and insignificant, but they often determine our level of profit, especially in short-term trading, which is extremely challenging to the mindset.

Today's content consists of the most practical advice, without any profound skills, but all are very pertinent and effective. I hope it is helpful to you!