📚 Short-term Trading Methodology

💡 How to use this page: Before trading → review the "Quick Decision Tables." After trading for review → review the "Execution Flowcharts." For deeper understanding → read the "Original."

A · Visual Quick Reference

A1 · Short-term vs Mid-term — At-a-Glance Comparison

A2 · Why You Must Use Automated Stop-Loss Orders

⛔ A necessary tool for short-term trading — not optional.

• Growth stocks can move several % in just one or two candles — manual stop-losses tend to be delayed
• Short-term decision frequency is high — decision fatigue sets in easily
• Delegate to the system in advance — reduces emotional behaviors like holding losers, refusing to take losses, and averaging down
• Human reaction speed has limits — automated orders define your risk boundaries
• For mature traders — it is an inseparable part of the trading plan

A3 · Win-Rate Expectations — Streaks Are the Norm

📊 Example sequence: 4 losses → 5 wins → 2 losses → 4 wins → 1 loss → 6 wins → 4 losses → 2 wins → 6 losses. *The full year is quite profitable, even though several 5–10 loss streaks occur along the way.*

A4 · Position-Sizing Decision Flowchart

🟢 1️⃣ Market has just finished a correction, holding 100% cash → test the waters

🟢 2️⃣ Small position + total stop-loss risk ≤ 2% of capital → test the waters (each round)

🟢 3️⃣ Testing with ≤25% of capital unsuccessful → should NOT increase size

🟢 4️⃣ Feedback skews positive + profit cushion exists → can scale up

🟢 5️⃣ Year's best setup + supportive market + profit cushion → scale up (10–25%)

🟢 6️⃣ 4–5 consecutive stop-outs → must reduce entry size / pause

A5 · Per-Trade Risk Quick Reference

🧮 *Formula: Stop as % of capital = Position Size × Stop-Loss Range.* For example: 5% position × 8% stop = 0.4%.

A6 · Market Environment Assessment

🌦️ Market analysis and money management account for over 50% of the entire game.

A7 · Stock Selection Criteria

🎯 Mantra: Strongest market × strongest sector × strongest stock.

• Pick the strongest stocks in the strongest market — high relative strength, holds up or bounces quickly
• Pick leading stocks within strong sectors — better win rate and risk-reward
• Focus only on technicals — fundamentals don't matter much

A8 · Buy Setup Quick Reference

A9 · Holding and Selling — 4-Stage Flowchart

This is the most important execution process. Check every day which stage your position is in.

1️⃣ Stage 1 · After buying → Two outcomes: (1) the stock follows through higher, or (2) the automated stop-loss is triggered.

2️⃣ Stage 2 · Trim 1/3 into strength → Usually trim 1/3 at once; if psychologically difficult, trim1/4 twice.

Common trim-into-strength triggers:

• Price extends 4–5 ATR above the 20MA (high probability of a brief pullback)
• Profit reaches 2–3 R (e.g., 5% stop →10–15% profit)
• Profit hits 20% (many stocks need a brief rest after a short-term 20% rally)
• Choppy market → trim earlier and more aggressively (up to 2/3)
• HOT market → trim later, give the stock breathing room

⚡ Advanced exception: true market leader + exceptional fundamentals → don't trim into strength; only sell on weakness. Other positions still require trimming into strength. *The advanced approach requires extensive experience.*

3️⃣ Stage 3 · Two paths (1) extends 10 ATR above the 50MA, or (2) closes below the 10MA → trim 1/3.

Corresponding actions:

-10 ATR above 50MA: tighten some stops to below the 5MA; or trim another 1/3–1/4 into strength

• Close below 10MA: trim 1/3

🛡️ Common noise (don't get scared out): Intraday plunge / poor single-day close / Monday gap / sudden acceleration higher / broad market pullback / broad market overbought / stock overbought. Solution: above the 10/20MA, every move is noise.

4️⃣ Stage 4 · Close below the 20MA → Sell remaining position.

Trim Path Quick Reference (HOT vs Choppy Markets)

A10 · Trim-Into-Strength Rules

• Use 1/3 for trimming into strength + attempt to add back on short pullbacks to the MAs
• Keep the other 2/3 as the core position — manage with 10MA / 20MA
• Trimming into strength should never exceed half (trimming big winners too aggressively hurts performance)
• Sell on weakness: "I'm not smarter than the 10MA / 20MA"
• When the 20MA is above your cost, trail up the stop to cost → remove risk, enter free roll

A11 · Climax Run Response

🚨 Climax Run signal: Surge of 50%+ over several sessions on near-record volume.

• Don't wait for weakness to sell → trim aggressively into strength
• Tighten some stops to below the 5MA

A12 · Equity Curve Smoothing Methods

Two methods help long-term compounding:

1. Trim into strength (control drawdown after upside)

- Must trim the first time price extends above the 20MA

- Consider another trim or tightening to the 5MA when price extends significantly above the 50MA (ATR extension from 50MA)

1. Staged stops (control drawdown from stop-outs)

- Example: trim half on a 3% break below cost → sell the rest on a 20MA break