Most of people are under the misconception that short term means less than one year investment but this is in fact not so. In terms of short term is talking about five years time of investment. A golden rule is that stay way from stock investment if investors are going to use the money of investment funds in the next five years.
Stock investment may offer many great opportunities but can be devastating for a short term investors. There are two strategies that investors are advisable to follow in the risky market: momentum trading and contrarian strategy.
The momentum trading strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analysis of stock trends supports this trading strategy. Japanese Candlestick Charting is the highly recommended trading tool of investing to see market sentiment change quickly.
It is suggested to look for stocks that have demonstrated stable and smooth rises in the stock prices. The idea is that when the stocks are not volatile, investors can simply ride the up-trend until the tread breaks.
The contrarian strategy is to look for over-reactions in the stock market. According to researches, stock market is not always efficient that means prices do not always represent the stock values accurately.
For instance, when a company announces a bad news, a lot of investors panic and price often drops below the stock fair value. To decide whether a stock over-reacted to the news, investors are recommended to look at the possibility of recovery from the impact of the bad news.
If the bad news is about the company loses a legal case and lead to stock drops 20% after news announcement, then investors can have confident on the stock performance in future as the news has no permanent damage to the business brand and product. Stock price dropping is due to market over-reacted in this case.
Hence, it is suggested to find a list of stocks that have price dropping recently, analyze the potential for a reversal through candlestick chart. If the stock demonstrates candlestick reversal patterns, investors are recommended to go through research of the recent news to analyze the recent price dropping factors. Investors then can take advantages of this over-sold opportunities if existence.