Common Active Trading Strategies:
Day Trading is possibly the most well-known active trading style. It's frequently considered a pseudonym for active trading itself. Day trading, as its name implies, is the method of buying and selling securities within the same day itself. Positions are closed out within the same day what traders are taken, and no position is held overnight. Conventionally, day trading is done by professional traders, such as specialists or market makers. However electronic trading has opened up this perform to novice (beginner) traders.
Some actually consider position trading to be a buy and hold strategy and not active trading. However, position trading, when done by a sophisticated trader, can be a form of active trading. Position trading uses longer term charts – anywhere from daily to monthly – in combination with other methods to determine the trend of the current market direction. This type of trade may last for several days to several weeks and sometimes longer, depending on the trend.
Trend traders look for succeeding higher highs or lower highs to determine the trend of a security. By jumping on and riding the wave, trend traders aim to benefit from both the up and downside of market movements. Trend traders look to determine the direction of the market, but they don’t try to predict any price levels. Classically, trend traders jump on the trend after it has recognized itself, and when the trend breaks, they usually exit the position. This means that in periods of high market volatility, trend trading is more difficult and its positions are generally reduced.
When a trend breaks, swing traders classically get in market. At the end of a trend, there is usually some price volatility as the new trend tries to recognize itself. Swing traders buy or sell as that price volatility sets in. Swing trades are usually held for more than a day but for a shorter time than trend trades. Swing traders often create a set of trading rules based on technical analysis or fundamental analysis.
These trading rules or algorithms are designed to identify when to buy and sell a security. While a swing-trading algorithm does not have to be exact and predict the peak of a price move, it does need a market that moves in one direction or another. A range bound or sideways market is a risk for swing traders.
Scalping is one of the quickest strategies engaged by active traders. It includes exploiting various price gaps caused by bid-ask spreads and order flows. The strategy generally works by making the spread or buying at the bid price and selling at the ask price to receive the difference between the two price points. Scalpers attempt to hold their positions for a short period, thus decreasing the risk correlated with the strategy.