However, individuals who trade short term are largely responsible for the establishment of stops that will prevent financial devastation.The cautious short term trader’s willingness to trade in response to informative signals is directly correlated with the degree that the information is reflected in the price at liquidation.
The objective is to find stocks that are trending significantly in a positive or negative slope.
Figure 1 shows stock trending higher than 20%: The stock price is increasing significantly over a period of 4 months; from December to March.
The 2% Rule sets a 2% maximum loss per trade limit.
The 6% Rule establishes 6% monthly drawdown cutoffs that have the capacity to break losing streaks.
However, (Diether, Lee & Werner, 2009) supported that short term traders positively contribute to the markets through corrections to short-term stock price deviations from the fundamental term trading is at the root of Keynes’ perspective of the financial markets.
This paper will present a qualitative review of short term trading; short term trading strategy theory; and how short term trades impact the market.Short term investors follow positive returns and predict future negative abnormal returns based upon historical returns.Long term investors base the time that positions are held upon profitability and market volatility.(Diether, Lee & Werner, 2009) presented that traders who purchase stocks that are characterized by low short-selling activity and sell short stocks that reflect high short-selling activity generate abnormal returns of approximately 1.39% (1.41%) monthly for New York Stock Exchange (NYSE) stocks.Stable equilibria in the market may be assessed according to informational efficiency, volatility, and liquidity.The Stochastic indicator 80 and 20 levels are used to identify overbought and oversold market conditions.