Not every investor is in the market for the long haul. Some prefer short time frames and volatile stocks, looking to make a profit in days or weeks rather than years. Short-term investors occasionally find a big win (like the short squeezes in meme stocks back in 2021), but day and swing trading is often more about grinding out small wins and minimizing losses. 

If you want to get into short-term trading, you’ll need to understand why day and swing traders look at different factors and concepts than long-term investors. Short-term trading requires technical skill, market trend knowledge, and the ability to stay calm under pressure. 

How to Select the Best Short-Term Stocks

Short-term traders use technical indicators like moving averages, the Moving Average Convergence Divergence (MACD), and the Relative Strength Index (RSI) to help them make their investment decisions. Fundamental analysis plays less of a role since long-term success metrics like sales and margin growth don’t have time to play out in the short-term investor’s portfolio. Instead, you’ll be looking for signals that indicate trend reversals or continuations and any potential catalyst that could provide a short-term boost.

Consider various factors when looking for stocks that might provide short-term profit growth. No single technical indicator has a 100% success rate, and even the most promising catalyst or product launch can fail to move the stock enough to fit your goals. When performing your analysis on a stock, make sure you consider the following criteria.

Market Volatility

Long-term investors try to ignore volatility and focus on results over time horizons that often measure in decades. If you’re returning 7% annually, you’ll have a nice egg after 30 years. But short-term investors won’t be satisfied with 7% annual returns. You'll need to embrace volatility if you want to earn 10-20% in a brief period. You'll also need to set strict risk tolerance parameters since short-term traders must exit positions more rapidly if their thesis doesn’t pan out.

Liquidity

When investing for short-term profits, liquidity is often a two-way street. Stocks with a low available share count (called the float) could be volatile on low volume since it doesn’t take as much buying pressure to push up a low-float stock. However, investors must consider the other side of the coin when it comes time to exit a position. Every seller needs a buyer, and illiquid stocks may be hard to unload completely once profit goals are reached.

Company News

Earnings releases, product launches, hires and departures, or analyst upgrades/downgrades can all be catalysts that influence short-term stock prices. For example, suppose a company with a history of consistent earnings beats misses in a particular quarter. In that case, further investigation might be warranted to see if it was a one-time blip due to capital expenditures or the beginning of a downtrend in profitability. 

Technical Signals

Last but not least, technical analysis will be at the forefront of most of your short-term trading activity. These signals are the action cues technical traders take to enter and exit positions based on specific price data. Indicators like MACD and RSI use moving averages to measure the direction and trend of stock price movements. Your profit goals and stop-loss orders will rely heavily on technical trading data.

5 Top Short-Term Stocks to Consider

Using a combination of the above criteria, we’ve identified five stocks to consider when looking for short-term profit opportunities. These stocks have different market caps and reside in various stock sectors, but they all have some combination of technical signals or upcoming catalysts that make them intriguing short-term investment candidates.

Skywest

Investing in the airline sector isn’t for the faint of heart, but Americans continue to travel at record rates, and Skywest Inc. (NASDAQ: SKYW) has been one of the biggest beneficiaries.  SKYW shares have shown impressive momentum over the last year, vastly outperforming its considerably larger competition amongst U.S. air carriers. SKYW stock price is trading well above its 20-, 50-, and 200-day moving averages, and despite a more than 20% gain in the previous three months,  shares still aren’t showing an oversold reading on the RSI. Consider riding the momentum on SKYW a bit longer as the next earnings release on July 25, 2024 approaches.

Complete Solaria

Small-cap solar tech provider Complete Solaria Inc. (NASDAQ: CSLR) recently had an important technical signal flash on its chart -- the Golden Cross, which occurs when a stock price’s 50-day moving average crosses over its 200-day moving average. Golden Crosses are well-known bullish signals, and CSLR shares have more than doubled since the pattern was formed in early May. The stock also has a small enough float (49 million shares outstanding) to create some serious volatility should volume continue to increase.

Tesla

Let’s switch gears and look at a stock that might be in the middle of a significant downtrend reversal. Few stocks have been dragged through the mud harder than Tesla Inc. (NASDAQ: TSLA) over the last year, thanks to the Cybertruck flop, a slowdown in electric vehicle (EV) sales growth and the ever-divided attention span of mercurial CEO Elon Musk. However, TSLA shares have rebounded 18% in the last month since the RSI flashed an oversold reading, and shareholders recently approved Musk’s latest compensation package, which could renew his efforts to boost the beleaguered EV manufacturer.

Oppenheimer Holdings

One of the most significant breakout stocks of 2024 is an investment bank itself, Oppenheimer Holdings Inc. (NYSE: OPY), which you likely see giving analyst reports and price targets on countless public companies. But OPY shares have been riding a wave of bullish momentum and are up nearly 29% in the last three months. The stock is trading above its 50- and 200-day moving averages (Golden Cross was triggered in May), and the company made some high-profile hires in June that continue to boost its global footprint.

Ligand Pharmaceuticals

Ligand Pharmaceuticals Inc. (NASDAQ: LGND) is a large-cap biotech with an extensive drug pipeline. The company currently markets medicine for multiple myeloma, lymphoblastic leukemia and lymphoma, kidney disease, diabetes, and more. In June 2024, LGND shares received Buy ratings from HG Wainwright and Benchmark, and the stock price has jumped over 18% year-to-date. Additionally, the stock chart shows a bullish MACD crossover signal while the RSI remains firmly below oversold levels.

Strategies for Short-Term Stock Trading

When developing a short-term trading plan, you should set clear objectives and know exactly where you’ll take profits (or cut losses). Stop-loss orders can be a crucial risk management step, especially if you’re trading with timeframes that measure in minutes or hours. Never risk more than you feel comfortable losing when trading on short-term strategies.

• Day Trading: If you buy and sell stocks during a single trading session and hold no positions overnight, you’re known as a day trader. Day traders must have the tightest profit and loss rules and often trade small caps or penny stocks for outsized volatility.
• Swing Trading: A swing trader also has a short timeframe but is willing to hold a stock overnight (or a few nights), waiting on a technical signal or catalyst to cause a move. Swing traders often look for unique situations like short squeezes where large profits can be made over a few days or weeks.
• Scalping: The shortest trading timeframe belongs to scalpers, who may only hold positions for seconds, looking to profit from incremental 3%, 4%, or 5% gains. These traders may make dozens (or more) of transactions per day, seeking to accumulate small wins while avoiding losses.

Risks and Considerations in Short-Term Trading

Short-term trading isn’t a glamorous life; it's a daily grind in front of a computer monitor, attempting to rack up as many winning trades as possible while ruthlessly cutting losing positions. You don’t get to "set it and forget it" like an investor with index funds in a retirement account. Instead, you’ll be following the market with the vigor of a basketball bettor during March Madness.

Market volatility and mistimed trades can create significant losses, but active trading also brings mental anguish and stress. You must constantly track the market, absorb data, and adjust your holdings. Very few investors have consistent success actively trading, and those that do must devote significant time and energy toward their winning ways. Always keep a diversified portfolio and never invest above your comfort level.

Short-Term Trading Can Provide Quick Profits, but Investors Must Follow Tight Rules

Long-term investing is usually the safest form because investors with long time horizons can recover from downturns or their own mistakes. But when time horizons narrow, so does the margin of error. To become a successful active trader, you must develop a trading regimen, practice your techniques (preferably with a demo account first), and never become too stubborn to exit a losing position. 

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