While stock market investing isn’t usually a get-rich-quick scheme and requires patience for long-term investments, you can complement longer holdings with stocks you plan to hold for three or fewer years and then convert to cash. Here are steps you can take to find the best short-term stocks:
1. Pay Attention to Moving Averages
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By looking at the moving average of a given stock, you can get a sense of whether that stock is trending upward or downward. The moving average shows you the average price of a stock over a set period of time. Common time frames for examining moving averages include:
- 15 days.
- 20 days.
- 30 days.
- 50 days.
- 100 days.
- 200 days.
A good candidate stock will typically have a moving average that’s sloping upward. However, if you’re searching for a stock to short, you’re generally going to want to discover one that has a moving average that’s flattening out or declining.
2. Look Into Overall Patterns or Cycles
The markets generally work in cycles, so you’ll want to understand how to watch the calendar at specific times to pinpoint the stocks you want to invest in. Most stock market gains traditionally occur between November and April. Between May and October, averages are usually relatively static. You can use these cycles to your advantage to keep in mind good times for entering into short (or long) positions.
3. Diversify Your Investments
If you’re looking for a few short-term stocks, it’s a good idea to diversify your investments. That means investing across various sectors. Instead of pooling all your resources into tech stocks, for instance, choose a mix of tech, health, and more.
4. Get A Feel for Market Trends
You don’t have to become a stockbroker overnight, but a little education can go a long way. Once you can spot basic trends, you can better determine what — and when — to buy. If the overall market trend is working against you, your odds for making a successful trade will drop.
5. Look Into Growth
If you’re interested in a company that seems to be set up for quick growth because they’re in a sector that’s experiencing rapid growth, check if they still have room to grow more. Likewise, if a company is offering a unique, niche service or product, check what their sales look like relative to their size.
6. Develop a Strategy for Controlling Risk
The above steps can help you figure out how and when to spot good potential trades in the short-term. However, a key aspect of any successful trading strategy includes controlling risk. Short-term trading comes with risk, so you’ll want to learn how to minimize that risk while maximizing your return. One simple thing to do is to use sell stops or buy stocks to protect yourself from reversals in the market. Because you don’t sell or buy the stock unless it hits a price you set in advance, these types of orders help you manage risk.
Finding the best short-term stocks requires some practice and research, but following these steps will get you set up for success.