Looking to make some short-term gains by trading stocks? Here are some tips and tricks to help you get started.
What Are Short-Term Stocks?
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Short-term stocks you purchase to hold for a short time period, usually under three years (or even much shorter). While your longer-term investments can build resources for the future, riding out market fluctuations over the years, you’ll plan to sell or convert short-term investments to cash much more quickly. You can use short-term stocks to complement the longer holdings in your portfolio when you want to get funds for near-term goals, for example, paying for a down payment on a home.
Pros and Cons of Short-Term Investments
Short-term stocks offer the potential to earn significant profits in a short period of time. However, there are also a few drawbacks to keep in mind as that same potential to win big means you’re taking on bigger risk:
- Short-term capital gains are taxed at your regular federal income tax rate, unlike the lower rates long-term capital gains offer.
- You may incur higher expenses through higher broker commission fees and more frequent transaction fees when you trade many short-term stocks.
- You won’t always earn profits in a short time period, as many investments that grow steadily over longer periods fall short in the short term.
Where Can You Find Information About Short-Term Stocks?
Coming out ahead by adding short-term stocks requires finding the right stocks to trade. When you’re looking for the best short-term stocks, you’ll want to get an early start each morning in terms of tracking, researching, and deciding which stocks you might trade on a given day. Look for stock scans and clean charts that can give you accurate information about 52-week highs, gap ups, and percentage gainers. If you want to find a good methodology to help you with this, consider checking out Investors Business Daily – thats a hangout for short term stock traders.
It’s helpful to limit the number of stocks you’re watching when you’re just getting started with short-term trades. That way, you can keep an eye on specific criteria like daily percentage changes, high or low trend changes, or signals indicating an unusual trend.
Here are three great stocks to check out now:
Dropbox (DBX)
Dropbox can set you up for quick returns. It’s one of the most undervalued names in the work-from-home space right now, and the company provides digital storage solutions for businesses and individuals working remotely, so it’s likely to stay at the forefront of what people need.
Under Armour (UAA)
The athletic apparel company has seen branding problems for years. However, Under Armour is in the midst of a turnaround. Collaborations with NBA superstars and other smart branding decisions are setting Under Armour up for a comeback.
CVS (CVS)
This drug retail store is in a good place to capitalize with the current climate of elevated medical awareness. Consumers could flock to this company to stock up on flu and cold medicines as well as to get the flu vaccine. CVS is the largest drug retailer in the United States, so it’s right where it needs to be to accelerate growth trajectory.
Also, you’ll want to do your due diligence! Researching fundamentals is less important if you’re planning on a short term hold, but you’ll want to keep an eye on the news, in particular earnings releases, as well as upgrades and downgrades by major ratings houses. Lastly, with the rise of internet communities such as reddits r/wallstreetbets and Facebook groups, you’ll want to keep an eye on what people are saying on the internet.
As with any kind of investment, you’ll want to diversify your short-term stocks by buying stocks across various sectors. These three picks can get you started. And, if you’re interested in a little bit more safety, consider only trading dividend stocks, which tend to be more profitable and therefore have slightly less price volatility.
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.