Why we call Short term Investing?
Stocks that we generally buy or sell for short-term (for a day or days, for a week or weeks or 1-3 months ) to earn some money is called as Investment for Short-term. To find a best stock for short-term, you have to look upon various facts some of which have discussed below. But before any thing, we need to know what makes stocks favourite choices for investors and traders for short-term.
What makes stocks to get Heavy interest from Investors and traders?
Corporate actions such as execution of Debt Reduction plan, business deal with other company or firm, Acquisition of comparatively smaller business/company, Amalgamation/Merger with other big corporate and all other important actions by Board of Directors makes Stock to buy or sell for short-term. Reporting an unexpected earnings performance can also attracts significant numbers of investors to buy /sell the shares of company for short-term. Sometimes, only extraordinary good Quarterly results of the company may attract institutiona investors also towards particular shares, which can again cause stocks to move significantly in a short span of time.
4 Things You Should keep in mind while buying stocks for short term!
1) Make Your Target Aggressive:
While you are buying any stock for short-term, you should make a target for your stock after which you would take a complete exit! If your are targets are hit, but you are still holding it for extra money and due to your greed, than it is wrong. Just take a exit whenever your target achieved!
Let’s take an example to understand how much aggressive target is important for Investments of short term. About 6 months ago, my friend Vaibhav bought some shares of JP Associate. At that time, stock of JP Associate was trading around Rs 20. He decided to exit from JP shares when it will cross his target of Rs 23. After few days, he founds that stock of JP had started trading around Rs 23.50. My friend afterwards decided to continue holding his long position for Rs 25 as a new exit target. After almost 1 week, stock begins trading around Rs 26. After this, my friend again set a new target of Rs 30, as a final one. But after trading around Rs 27, Stock of JP suddenly took a deep slide and fell to Rs 20 in just 2 days. After gaining so much good returns (almost 35 percent return), lossed everything that he had got.
Many other traders and investors also faces such things. And in fact it is common to see only due to greed of retail investors. That’s why, I highly recommend to decide a less flexible or fix exit target for your shares and whenever stock hits your target, just take the EXIT.
2) Analyse why are you buying stock for short-term!
Before buying any stock whether for short-term or long-term, consider why are you buying that stock. Sometimes we may get attracted by the sharp jumps and rally in shares, which is difficult to determine how long it will sustain. Taking a entry in stocks when trend is very close to get over has always resulted in a loss of a trader.
About 1 year ago, there was a stock which was moving almost flat from last few years. I don’t remember the exact name of the share. Therefore, I am taking the name of that as ABC. After long consolidation, a sudden jump came in the stock which attracted my friend Vaibhav. And he immediately bought it. ABC that was moving around Rs 50 had suddenly took height of Rs 75 in just three days. But my friend took entry in this scrip around Rs 73.
Just like stock had rallied before, it cracked down to Rs 55 and my friend went into heavy loss. If he had even avoided that stock, he could save his money. He got into the stock at a wrong time and wrong level.
This teaches us that buying stocks at high levels is not safe every time. So try to buy stocks at lower levels rather than buying them when they have already performed. Taking a entry in stock at higher levels could be very risky for you.
3) Analyse the short term story of company
Before buying any stock for short-term, consider to research about company! Buying stocks during volatile period without getting enough information about the company can be very risky for you. Try to know what events are possible to arise for your stock in short term. Here I am referring events to those episodes or happenings which can influence the price of your share.
Sometimes, a stock may start moving 10 percent up & down much faster and may become volatile before any major event. Using such volatilities with proper attention helps traders to earn extra money without any great effort.
However, research is not mandatory when you are buying stocks for only few days! In such situations, analysis of Technical Charts become more important for you.
4) Analyse the trend of Stock!
Analysing technical Chart of stock is very important when you buys a particular for just few days. Try to Identify the trend of your desired stock and take Position in accordance with it.
If you are buying a particular stock which was quoting around Rs.65 in 2014, Rs.42 in 2015, Rs.26 in 2016 would increase your chances to book some loss only. While if you prefer to buy that stock which was trading around Rs.48 in 2014, Rs.87 in 2015, Rs.125 in 2016 would increase your chances to have some positive returns.
Without proper knowledge of technical charts, it may become very difficult for you to make a deep analysis of stock, using its Charts. But atleast, you can try to analyse some basics things like trend, volatility level, resistance and support levels etc of your stock.
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