In trading strategies, there exists a term rather common for traders named active trading. As the name implies, this type of trading permits traders to engage more in trading activities. To further our understanding pertinent to it, let’s discuss it below.
Active trading is the act of buying and/or selling securities, or trading, on short-term movements. Additionally, the base for the profits of each transaction is according to price movement on a short-term chart.
In contrast to passive trading which incorporates buy and hold strategies, active trading captures and follows the market trend at that particular minute. Ergo, the aims of the trade is to beat the market average – a measure of the overall price level of a market according to a specific group of stocks or other securities.
Although even novice traders can be active traders nowadays, active traders were mostly professional in the past. Since the chart is most likely to change in short terms, this becomes one of the reasons that induces its high fees and trading costs.
Besides, traders must not execute active trading without certain strategies or calculations. That said, for traders whose interests are to experiment with active trading, here are four common strategies to do so.
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Known as a pseudonym of the foregoing, day trading is, as its name, a method to buy and sell securities at the very same date. There, furthermore, prevails no overnight hold to any transaction.
Some considers position trading as a buy-and-hold strategy. People, arguably, categorize position trading as a strategy in active trading for the practitioners rely on trends despite using a long-term chart.
Without predicting the price, position traders simply keep up with the trends. For that reason, this might last weeks or months, depending on how long the trend lasts. However, if the trend appears to break, position traders stop as well.
In contrast to position traders, swing traders get in the game when a trend breaks. Swing trading capitalizes a price volatility induced by the transition from one trend to another. Hence, swing traders usually aim for lower profits in comparison to other strategies. Besides, many traders feel that swing trading is far too risky, particularly in a range-bound or sideways market.
Scalping is, aside from being one of the most common active trading strategies, also the quickest to execute compared to the foregoing. Exploiting bid-ask-spreads and order-flows-induced price gaps, scalping works by buying at the bid price and selling at the ask price. Thus, traders can acquire the difference between the two price points.
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