What does "next-day trading" mean? How can retail investors profit from short-term trading techniques?

When it comes to making quick money in Taiwan stocks, many investors have heard of the concept of “next-day trading.” Some market participants do indeed profit rapidly through this method, but how exactly does next-day trading work? Where are the risks? This article will analyze the core meaning, specific techniques, and risk warnings of next-day trading from a practical perspective.

What is next-day trading? Simply put, it means

Next-day trading is straightforward: Buy stocks or warrants on the same day to establish a position, then close the position and sell the next day. It is a short-term trading strategy that aims to profit from price fluctuations overnight.

Compared to long-term holding, next-day trading has several obvious features:

Short duration, quick results — No need to wait months or years; you can see profit or loss within a trading day. Investors can quickly participate in market opportunities and realize capital turnover.

Capture sudden market movements — If the market releases strong news or trends (such as a significant positive development for a stock), next-day traders can buy in during the day, and sell the next day as the price continues to rise, earning the spread.

How to operate next-day trading? Two core techniques explained

Technique 1: Lock Limit-Up Strategy

This is a common method used by big players in next-day trading. The logic is as follows:

When a stock releases major positive news, coupled with the main funds pushing the price, the stock price can quickly hit the limit-up. During this process, many retail investors chase the rally, creating a “magnetic effect” that locks the price at the limit-up. Because the buying demand is not fully satisfied, the stock often continues to rise significantly the next day, allowing the main players to sell at a high position and realize profits.

How should retail investors judge?

1. Pay close attention to the speed of the day’s rise and trading volume. In Taiwan stocks, a limit-up is 10%; select stocks with a daily increase of over 7.5%.

2. Assess the significance of the positive news — substantial revenue growth, new product launches, large order increases, etc., are considered heavy news.

3. Observe whether buying volume increases and if technical indicators are approaching oversold levels.

4. Check if the stock has experienced continuous days of consumption-driven rise (which may affect subsequent upward potential).

Technique 2: Derivative Arbitrage Method

Next-day traders also leverage derivatives such as warrants for profit. The logic is: When large funds buy substantial amounts of warrants, the issuer (a proprietary trading firm) must hedge by buying the underlying stock, which directly pushes up the stock price. Next-day traders can simultaneously sell their warrants and stocks to realize double profits.

Practical case: How to really make money?

Case 1: Stock Tenquan (4967)

Around 10:00 AM on November 2, 2023, memory module manufacturer Tenquan’s stock price was reported at NT$85.5, a 7.5% increase.

The fundamentals at that time were strong: September revenue was NT$1.482 billion, up 16.47% month-on-month and 113.10% year-on-year. This set new records for monthly, quarterly, and cumulative revenue for the first three quarters, making the news quite impactful.

Simultaneously, trading volume significantly increased, and the upward speed was strong. This meets the “lock limit-up” condition for next-day trading, so the trader bought at market price that day.

Result: Successfully hit the limit-up around 10:20 AM (already showing paper profits), and the next day opened higher and continued to rise, reaching a high of NT$92.2. Profit of 7.8% in a single day.

Case 2: Wheat Futures (ZW)

On the evening of July 24, 2023, escalating Russia-Ukraine conflict, with Russia using drones to attack the Danube River port in Odessa, Ukraine, destroying multiple granaries and triggering a global food crisis.

Chicago Mercantile Exchange (CME) agricultural futures prices jumped sharply, with wheat futures (ZW) quickly surpassing 6% (743.5 cents), approaching the 8% limit-up.

Based on news, speed of rise, and volume, all meet the conditions for next-day trading. The trader bought at market price that day, and around 23:30 that night, hit the 8% limit-up (showing paper profits). Although the limit-up was broken multiple times afterward, each correction was smaller, and aggressive investors could even add positions. The next day, the price opened higher and continued to rise to a high of 777.25 cents.

Using common futures leverage of 10-20 times, the returns could be even more astonishing.

Next-day trading vs day trading: what are the differences?

The fundamental difference lies in holding time:

Next-day trading offers more time for analysis and decision-making, but at the cost of overnight risk. Day trading demands strong trading skills and quick responses but has lower costs.

What are the risks of next-day trading? Must be taken seriously

Market sentiment risk

Short-term stock market fluctuations are unpredictable. Even with correct judgment, investor emotions can influence decisions. After buying, if misjudgments occur—such as a limit-up being broken multiple times and the stock price starting to fall—buyers need to consider: Are the positive factors reversing? Is the selling volume too large? Should they cut losses or partially close positions in time?

Information risk

Next-day trading requires close monitoring of market news and the company’s fundamentals. If negative news (black swan events, regulatory changes, corporate emergencies) occurs overnight and cannot be responded to promptly, investors risk being trapped.

Overnight risk

This is the biggest risk in next-day trading. Compared to day trading, next-day trading involves holding positions overnight. If adverse news or sudden events occur outside trading hours, investors cannot hedge or stop-loss immediately, and can only passively bear losses.

Advanced techniques and risk management

1. Technical analysis — Use moving averages, RSI, MACD, and other tools to study stock trends and find entry/exit signals.

2. Monitor main funds — Observe block trades, margin balance changes to judge whether big players are supporting or unloading.

3. Diversify instruments — The concept of next-day trading can be applied to futures, CFDs, and other products, selecting the most successful targets.

4. Price-volume confirmation — Price increases accompanied by volume expansion usually indicate momentum; caution is needed if volume declines.

5. Strict stop-loss — Set appropriate stop-loss points, control individual position sizes reasonably, and avoid over-concentration in one stock.

6. Continuous learning — Next-day trading requires extensive experience; review trades regularly and learn from mistakes.

Summary: What does next-day trading mean, and how can you make money?

Next-day trading refers to short-term operations: buy on the same day, sell the next day. The core is to capture overnight volatility and the trend continuation the following day. The market is not entirely rational in the short term, which creates arbitrage opportunities.

But successful next-day traders need:

• Calm mindset — Handle market fluctuations without panic
• Sharp observation — Quickly identify positive news and main fund movements
• Disciplined execution — Follow planned stop-loss and take-profit levels, avoid emotional trading
• Risk awareness — Fully understand overnight and information risks

Next-day trading can indeed be profitable, but knowing your limits and trading flexibly are key to long-term stable gains.