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Understanding Short Term Stocks

Understanding Short Term Stocks

Successful investment in the stock market often requires a variety of strategies. For some investments, patience is your best bet, so your portfolio might include long-term investments like real estate and stocks you keep for somewhere from 10 to 30 years. These are investments you may rely on for consistent growth for retirement. To keep some of your money liquid, you can also round out your portfolio with short-term investments like a three-year CD investment or short-term stocks, which can give you quick returns but come with higher risk.

What Are Short-Term Stocks?

A short-term stock is a stock you intend to hang on to for a short amount of time. Sometimes you keep it for mere hours, sometimes for up to a year. Ideally, the stock will provide you a good increase in your investment by the time you sell. With long-term stocks, you manage your expectations with the ebbs and flows of the market, trusting that your investment will yield a profit over time. When deciding which companies to trust over the long haul, you use different criteria than when choosing short-term investments.

How to Find the Best Short-Term Stocks

There’s no set formula for choosing the best short-term stocks, but some homework and due diligence can really pay off. News broadcasts report what’s already happening in the market, so they’re rarely a good indicator of good picks. Instead, research the companies yourself. Look for companies that are experiencing rapid growth and consider whether there is room for more. Learn as much as you can about the executives, find out if they’ve been successful in the past, and consider if their experience can help with future growth.

Looking around at current events can help guide your choices, too. During the Coronavirus pandemic, for example, video conferencing stock shot through the roof. Ask yourself what social and political factors will help a company grow quickly. New companies readying themselves for a growth spurt can be a good choice, along with established companies looking to introduce a new product or enter a growing sector. The stocks’ perceived value in the market means the price isn’t always cheap, but they’re expected to grow and make you money quickly.

Trading Strategies for Short-Term Stocks

Unlike most long-term investments, short-term stock trading forces you to carefully analyze your risk. Achieving success means minimizing the risk of loss and maximizing profits. Before you dive in, it’s useful to watch market trends over a period of time. Familiarize yourself with tools that help give you confidence in stocks’ performance, like stock chart patterns, and buy and sell indicators like the RSI (relative strength index). Decide how much of your investment capital you’re willing to put into short-term stocks given the risk and stick to it.

Short-term stocks can be a tempting addition to your trading portfolio. With some diligent analysis of your personal risk and some study of the stock market patterns, you can be on your way to seeing returns on your short-term investments.


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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.