April 13, 2024

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Types of Active Trading Strategies

3 min read

Active trading refers the Wibest Brokers List of securities based on short-term movements to gain profits from the price movements on a short-term chart.

Active traders can be considered as the polar opposites of those who believe in long-term, buy-and-hold strategy found among passive or index investors.

There are different ways to accomplish an active trading strategy. Each strategy has appropriate market environments and inherent risks. The following are some of the most popular active trading strategies.

Day Trading

Day trading is probably the most well-known active trading style. It’s usually treated as another nickname of active trading.

Day trading refer to buying and selling securities within the same day. The trader closes the positions within the same they that they have been taken. No positions stay open overnight.

Traditionally, day trading is done by professional traders, like specialists or market makers. On the other hand, electronic trading has made this strategy more accessible to novice traders.

Position Trading

Positions trading, for some, is actually, another buy-and-hold strategy and not active trading. On the other hand, position trading, when performed by an advanced trader, can also be another way of active trading.

Position traders use longer term charts along with other methods to find the trend of the current market direction. This kind of trade may last for several days to several weeks, sometimes longer, depending on the trend.

Trend trader usually seek consecutive higher highs or lower highs to find the trend of the security. When jumping and riding the “wave,” trend traders try to benefit from both the up and downside of market movements.

Trend traders try to determine the direction of the market, but they don’t try to predict any price levels. Usually, trend traders jump on the trend after it has established itself.

When the trend breaks, they usually exit the position. So, in times of high market volatility, trend trading is more difficult and Wibest Broker Education positions are generally fewer.

Swing Trading

When a trend breaks, wing traders usually join the party. At the end of the trend, there are often some price volatility as the new trend attempts to establish itself.

Swing traders buy or sell during that time as volatility sets in. Trades in this strategy usually last for more than a day but for a shorter time than for trend traders.

Often, swing traders create a set of trading rules depending on technical and fundamental analysis. These trading rules or algorithms are created to help them identify when to buy and sell a security.

Although swing trading algorithm doesn’t have to be exact and predict the highs or lows of price movement, it does require the market to move in one direction or another. For swing traders, a range-bound or sideways market isn’t good.

Scalping

Scalping is one of the fastest strategies used by active traders. It involves taking advantage of various price gaps caused by bid-ask spreads and  Wibest Broker Education order flows. The strategy in general works by making the spread or buying at the bid price and selling at the ask price to receive the difference between the two prices.