4 Types of Active Trading

You may have heard about different forms of trading; but basically, they all fall under two heads: long-term trading and active trading. Long-term trading is where investors buy stocks for long term and hold them until they can get some good returns. Active trading is more short-term in nature.

Unlike long-term trading, Active trading is all about taking maximum advantage of the short-term price movements of shares in the stock market.

Active traders believe in capturing the market trend to make their profits. If you want to try your hand at active trading, you will first have to understand what the different types of active trading involve. Here is a low down on the same:

Intraday Trading

Of all the active trading methods, day trading is the most well-known. More often than not it is used as a synonym of active trading. Day trading involves buying and selling of securities on the same day.

Generally, it is the professional traders, specialists, or market makers who get into day trading. However, today there are many online trading platforms that have given opportunities even to the novice traders to get into day trading.

Position Trading

As the name specifies Position trading involves taking a position which could be for weeks, months, or even years. These traders generally make use of long-term charts along with other methods to identify the market trends before taking their positions.

Apart from stocks, they are also into ETFs, futures, and forex trading. These are the traders who manage to make money even when the assets are declining in value. Minor price fluctuations and pullbacks are not a concern for position traders.

Unlike day traders they don’t trade every day or spend hours monitoring the trends of the stock market. Instead, they just do their research, pick an asset, take their position and enter the trade. Then all they have to do is monitor their position every now and then.

They jump on to the trends that are already established and exit their position when the trend breaks. The strategy works well when the volatility of the market is low.

Swing Trading

Swing trading essentially comes into the picture when there is a break in the trend. They wait for the price volatility when a new trend is trying to establish itself. Swing traders have their own set of rules when it comes to trading.

Unlike other traders, swing traders are not bothered about predicting the exact valley or peak of a price move. However, they need to be sure about the direction in which the market is moving before they buy their assets.

And once they do, they hold on to it for more than a day but not for as long as the position traders wait. A range-bound or sideways market can be quite risky for swing traders.

Scalping

Scalping works by exploiting the various price gaps that are caused by order flows and bid-ask spreads. It is all about making the spread. The trader here buys an asset at the bid price and then sells it at the ask price.

The difference between these two price points is where his profit would lie. The scalpers tend to reduce the risk of scalping by holding their positions for short periods of time. They refrain from trading if there are large movements or high volume movements in the stock market. It is the small moves and smaller volumes that they are interested in.

The profit per trade would be much smaller here when compared to the other types of trading. And hence the scalpers usually look for liquid markets where they can trade more frequently. They avoid markets that are prone to sudden price movements. Instead they make their spread on the same bid or ask prices repeatedly.

Active trading is generally high-frequency trading. Unless a trader has a certain level of knowledge and expertise to ride the stock market, he won’t be able to make continuous profits in active trading, and irrespective of the strategy he chooses.

He does have the option of signing up with an online stock trading service that can guide him through valuable tips. However, he will have to keep in mind the cost and the execution aspects before taking the decision.

Today there are numerous online stock trading services that offer excellent equity cash tips to traders who sign up with them. Following these tips may help even novice traders in minimizing their risks and maximizing their returns through active trading.

By providing real-time market data, these services help in taking important decisions about the right stock to pick and at the right time. Real Stock Market is one such service you could consider if you are planning to try your hand at any of the above methods of active trading. Sign up today for valuable stock market recommendations.