Before we begin, what exactly is Active trading? As someone who is a beginner in the field of trading, it is quite understandable to be unaware of the jargons. So let’s just explain in simple words – when you buy and sell securities basis short-term movements in order to avail profit from the price fluctuations happening on a short-term stock chart, it is called as active trading. Now, one needs to understand that there is a lot of difference in strategy for active trading and the long-term trading.
There are several ways to conquer the game of active trading; in fact with the help of a good trading app, you can actually get past the risks of the market. However, it is still very essential to know the basics so as to work as per different market environments and avoid any risk. Let’s take a look at the top four strategies implemented in active trading!
- Day Trading
One of the most popular active trading method, day training is often called the pseudonym for active trading in itself. In this method, one buys and sells securities on the same day itself. No position is kept overnight and is sold on the same day. As a beginner, you must avoid day trading as it generally requires the knack and skill of a specialist. However, electronic trading has definitely made it easier for the novice as well.
- Position Trading
A lot of market gurus call position trading as the buy-and-hold (long-term) strategy instead of active trading although it can well be considered as active trading if performed by a specialist or an advanced trader. This kind of trading requires the usage of long term charts. This duration can be as vast as possible, daily, monthly or a certain period of time that helps one determine the market trend and in what direction the money is going. Unlike the day trading, position trading can take several days and may often get extended depending on the market trend. In this, specialists gauge successive highs so as to understand the drift of a security. By doing so, they try to take advantage of good as well as bad condition of the market. However, this requires a lot of skills and understanding of market analysis.
- Swing Trading
Swing traders enter the scene when a trend breaks. The trading business witnesses some price volatility at the end of a trend. This is because a new trend is trying to set in. In the transformation, swing traders take advantage of the price volatility and accordingly buy or sell. The swing trades are held for short term, more than a day, but not for too long. If you wish to enter swing trading, you must know that most of your kind would have a trading rulebook basis on fundamental analysis. The algorithm helps swing traders predict price move in a better manner.
One of the better and quicker strategies implemented by active traders, scalping involves exploitation of price gaps triggered due to order flows. This particular strategy works by buying the security at the bid price and selling off the same at the ask price so as to take advantage of the difference in the two prices. As a scalper, you’d be required to hold for a shorter time so that you’re able to reduce any risk. Moreover, scalper will not risk higher volume. Instead, he/she would take benefit from the smaller moves that arise often. However, it is to be noted that the profits here are small. Therefore, liquid markets are most sought-after so that one is able to benefit from higher number of trading opportunities.
It is important to calculate the risk involved in whatever strategies one employs. As an active trader, one can definitely use any of the above mentioned strategies, but it is as important to use one’s discretion well.