Fundamental Active Trading Strategy Guides for Beginners

Active trading is the process of buying and selling of securities based on a short-term movement. Market’s short movements profit on a short-term stock chart. This mentality correlates from long-term trading strategies and a buy-and-hold strategy.

The buy-and-hold strategy suggests that price movements over the long-term to outweigh the price movements in the short-term should be ignored. In contrary, active trading is an idea that short-term movements within market trends are the profitable ones.

There are various processes in integrating an active trading strategy. Each is integrated into appropriate market environments for risks are avoidable according to strategy.

Now let us list down the most common active trading strategies and analyze which will be best for your trading style.

Day Trading

This is the most common and well-known active trading among the rest. It is often considered an alias or another term for active trading. It is the process of buying and selling securities within the day. No positions can be held overnight for it will close on the same day they’ve taken. Professionals including specialists and market makers mostly perform day trading. But with electronic trading, it enables novice traders to open up and to practice day trading.

Swing Trading

Whenever a trend breaks out, swing trading is used to win a trade. End trend usually has some price volatility for new trend try to establish itself. Swing traders buy or sell whenever the price volatility sets in. Swing traders usually hold the trades for more than a day. They often make a set of trading rules based on technical and fundamental analysis.

This trading algorithm is designed to know when to buy and sell a security. Swing trading algorithm doesn’t have any exact peak of a price move, but it needs a market that moves in a direction or another. Range-bound and sideways markets are the risks in swing trading.

Scalping

Scalping is among the fastest strategy made by active traders. This strategy includes employing various price gaps made by bid-ask spreads and order flows. Scalping works best by making the spread or buying at the bid price and sells to the asking price to receive the difference in two price points. Traders who use scalping attempts to hold a position for a short period, consequently, decreasing the risk associated with the strategy.

Scalping traders don’t try to exploit big moves or any high volume trade. They try to have an advantage on small moves that frequently occurs and often moves on smaller volumes. The level of profit is small, so scalping traders look for more liquid markets. That will help increase their frequency trades. Unlike those swing traders, these traders like quiet markets which aren’t prone to sudden price movements. In doing so, they can have potential spread repeatedly on same bid/ask prices.

Position Trading

Others consider position trading as buy-and-hold strategy rather than active trading. But position trading if integrated by an advanced trader can become a form of active trading. Position traders use longer-term charts (from daily to monthly) with a combination of other methods. That will soon determine the trend of the current market direction. This type of trade could last seven days or more than a week. Sometimes it could go longer depending on the trend.

Trend traders often look for successive higher highs or lower highs in analyzing the trend of a security. Going with the trend gives benefits to traders from both the downside and growth of the market movements.

These traders also look out to determine the direction of the market. But they don’t try to forecast any price levels. Usually, trend traders go to a trend after it establishes itself. When the trend breaks, they usually exit the position. Meaning that within the period of high market volatility, trend trading becomes more difficult and the positions reduced generally.

Active trading strategies are being employed mostly by professional traders. Having an in-house brokerage house reduces the cost associated with high-frequency trading to ensure better execution of trades. Low commission and better executions could be the key elements to improve profit potential. Significant software and hardware purchases are necessary to implement the strategy successfully. Active trading being somehow prohibitive to an individual trader is not unachievable.