Next-day trading operation manual: A complete guide from concept to practice

In the Taiwan stock market, the next-day trading strategy has always been a focus of many investors. Rather than a legend, it is a systematic trading method that requires mastering market rhythm and risk management. This article will delve into the operational logic, key techniques, and practical applications of next-day trading.

Core Concepts of Next-Day Trading

Next-day trading refers to opening a position (buying or selling) on a trading day and closing it the next day. This short-term trading approach aims to profit from overnight price movements or market news.

Compared to traditional medium- to long-term holding strategies, next-day trading has the following characteristics:

Quick liquidity — Investors do not need to wait weeks or months to realize capital appreciation, improving capital flow efficiency.

Capturing event-driven trends — When significant positive news or trend shifts occur, next-day trading can respond swiftly, entering early in the price increase and profiting.

Practical Techniques for Next-Day Trading

Technique 1: Logic of Locking Limit-Up Strategies

This is the most common operation in next-day trading. Large capital often uses major positive news about a stock to push it to the limit-up. During this process, the market’s “magnetic effect” attracts many follow-on buyers, locking the stock at the limit-up price. Since buy demand is unmet, the stock often opens higher and continues to rise the next day, allowing holders to realize gains.

For retail investors, adjusting thinking to capture such high-probability opportunities is advisable. Specific steps include:

• Setting automatic price increase alerts (Taiwan stocks have a 10% limit-up), filtering stocks with a daily increase over 7.5%
• Assessing the significance of the positive news
• Observing whether the upward momentum is rapid and whether trading volume significantly increases
• Checking technical indicators for oversold signals or continuous multiple-day upward movements
• Making a comprehensive judgment to decide whether to follow and how much to invest

Technique 2: Leverage Characteristics of Derivative Products

Next-day traders also profit from mechanisms of derivatives like warrants. When large funds buy warrants, the issuer (market maker) must hedge risk by purchasing the underlying stock in the spot market. This chain reaction can further drive up the stock price. Traders can sell both warrants and holdings the next day to realize “bilateral gains.”

Case Studies of Next-Day Trading

Case 1: Limit-up Operation of Memory Module Stocks

On November 2, 2023, Ten Quen(4967) showed strength. Around 10:00 AM, the price was NT$85.5, with a 7.5% increase and significantly increased volume. The boost was due to September revenue reaching NT$1.482 billion, up 16.47% month-over-month and 113.10% year-over-year, setting new records for the month, quarter, and cumulative three-quarter revenue.

From a technical perspective, the stock had strong buy volume, rapid upward speed, and the positive news was substantial enough to meet the “lock limit-up” condition. If a trader bought at market price at this point, Ten Quen successfully hit the limit-up at 10:20 (already with unrealized gains), and the next day opened higher and continued to rise, reaching a high of NT$92.2, realizing about 7.8% profit in a single day.

Case 2: Next-Day Trading of Commodity Futures

On the evening of July 24, 2023, the Russia-Ukraine conflict escalated, with Russia expanding airstrikes on Ukrainian grain export ports and destroying multiple granaries, raising global food crisis concerns. That night, agricultural futures on the Chicago Mercantile Exchange (CME) surged, with wheat futures(ZW) quickly breaking 6%, surpassing 743.5 cents, approaching an 8% limit-up.

Based on the speed of rise, trading volume, and news factors, this market movement fully meets the conditions for next-day trading. After buying at market price, wheat futures hit the 8% limit-up around 11:30 PM (showing paper profit). Although the limit-up was broken multiple times afterward, each adjustment was smaller, and aggressive investors could consider adding positions. The next day, prices opened higher and continued to rise to a high of 777.25 cents.

Comparison of Next-Day Trading and Day Trading

These two trading modes differ significantly in holding period, risk characteristics, and cost structure:

Next-day trading is relatively stable, offering more time for analysis and judgment; day trading focuses on capturing intraday price differences, with frequent trades and higher operational speed demands.

Risk Assessment of Next-Day Trading

Market sentiment uncertainty

Stock market volatility is inherent, and market changes are difficult to predict completely. Even with correct initial judgment, short-term investors’ psychological fluctuations and misjudgments during the process can lead to trading failures. For example, a stock hits the limit-up in the morning but then opens multiple times and begins to decline. At this point, one must assess whether the positive factors weaken and whether selling volume increases to decide whether to partially or fully close positions.

Variable of information surface

Next-day trading requires investors to constantly monitor market dynamics and promptly understand fundamental changes of relevant targets. Sudden negative news can completely alter market expectations.

Risks of overnight positions

Since positions span overnight, investors cannot hedge or stop-loss in real-time against adverse news during non-trading hours. This necessitates pre-evaluating risk tolerance and devising corresponding contingency plans.

Key Factors for Success in Next-Day Trading

The success of next-day trading depends on multiple factors. The following suggestions can help improve trading efficiency:

1. Use of technical analysis tools

Utilize moving averages, RSI (Relative Strength Index)(RSI), MACD, and other technical indicators to study price trends and market momentum, obtaining entry and exit signals.

2. Monitoring of major capital flows

Observe the inflow and outflow of major funds, which can provide critical information about market capital movement and individual stock trends.

3. Diversification of trading tools

The concept of next-day trading can be applied to futures, CFDs, and other financial products. If investors can select the highest-probability trading opportunities from a sufficient variety of products, they can increase total profits and trading frequency.

4. Interpretation of price-volume relationships

Pay attention to the interaction between stock price and trading volume. Price increases accompanied by volume expansion often indicate the formation of a strong trend.

5. Implementation of risk management

Set clear stop-loss points, reasonably control individual investment amounts, and avoid over-concentration on a single target. Hedging can also be achieved through futures, options, or CFD instruments.

6. Continuous learning and experience accumulation

Next-day trading requires long-term knowledge accumulation and practical experience. Regularly review trading results, learn from successes and failures, and gradually optimize strategies.

Summary

Benjamin Graham once said, “In the short term, the stock market is a voting machine; in the long term, it is a weighing machine.” As a short-term trading approach, next-day trading faces the challenge of market irrationality in the short run. Investors must have stable psychological qualities, remain calm amid market fluctuations, and adapt strategies flexibly according to different market conditions. Only by understanding their own capacity can they sustain profits.