Active Trading Strategies

What is Active Trading?

Active trading is trading of financial instruments to make profit from short term price movements. It might be a minute, a day or days or a few weeks. It is the opposite of a buy and hold strategy. Active trading can be performed on financial instruments like stocks, futures, currency trades or high-volume instruments which allows the traders to enter and exit from trading in the short term. Usually, economic conditions or fundamental analysis does not play a role in active trading strategy. But Technical analysis and statistical analysis plays an essential role in predicting price movements.

Active Trading Strategies

It is always good to choose your trading strategy. i.e. (the strategy that best suits your style). Another essential thing to be noted while selecting a strategy is how you can take a risk. Long-term traders buy and hold on to their stocks for a number of days or months. Short-term traders book their profit/loss within a few days. Traders who actively trade in the financial market adapt to the market movement and use the trading strategies to maximize profits.

Traders who actively trade in the financial market adapt to the market movement and use the trading strategies to maximize profits as called Active Traders.

Here are some types of stock trading strategies:

1. Day Trading/ Intraday Trading:

Day trading is also known as intraday trading. Here the trader takes a trade and gets out of his position before the market ends. He is out of his position during market hours and does not carry any overnight positions. This is one of the most active stock trading strategy. Professional traders prefer day trading. The gains from a day trade may be limited, and the trader may not be able to catch a significant movement in a trending stock. There is no risk involved with the risk of events that may affect the stock price after the market hours.

2. Scalping: 

Scalping is a very active stock trading strategies usually done by traders looking to capture small price movements in a stock. They try to capture the spread that causes price gaps. The Scalping strategy is followed by aggressive traders who catch even small price movements and expect huge returns. Generally, the trader makes numerous trades throughout the day to profit from small price movements. Scalping trading is also known as aggressive trading strategies.

3. Swing Trading: 

Swing trading is a technique to generate profit from price changes or stock swings within one or several days. Swing traders are not usually concerned with the built-in value of the shares. Instead, they focus on the price trends of the shares determined by technical analysis of stock market charts, which help them identify the stocks that have some price momentum.

4. Position Trading: 

Positional trading is holding on to positions for days or even months. They usually grasp the start of a trend and hold on to the stock until it breaks. This kind of trading strategy allows the trader to capture huge profits if the price moves in his direction. He can also capture the gains from gap-up openings during the pre-market hours. The trader will always be worried about any unexpected news or events during the nonmarket hours.

5. Trend Following: 

Trend following is a strategy that involves buying securities that are trending upward and selling securities that are trending downward. Trend followers aim to ride the trend for as long as possible to maximize profits.

6. Contrarian Trading:

Contrarian trading is a strategy that involves buying securities that are out of Favor with the market and selling securities that are overvalued. Contrarian traders believe that markets tend to overreact to news and events, creating opportunities for profits.

7. Fading Strategy

In this strategy, traders short the stock after it moves up rapidly. They assume that the stores are overbought and that those buyers who may have taken the stock early would start booking profits. Although the risk is involved in this strategy, it is also very rewarding.

8. Algorithmic Trading: 

Algorithmic trading, also known as algo trading or automated trading, involves using computer algorithms to execute trades automatically based on predefined criteria. Algo traders use complex mathematical models and historical data to make trading decisions.

9. Arbitrage: 

Arbitrage is a strategy that involves exploiting price differences between two or more markets. Arbitrageurs buy securities in one market and sell them in another market to profit from the price discrepancy.

10. Pairs Trading: 

Pairs trading is a strategy that involves trading two correlated securities simultaneously, with the goal of profiting from the relative price movements between the two securities. Pairs traders aim to identify pairs of securities that have historically moved together and take opposite positions when they diverge.

11. Event Driven Trading: 

Event-driven trading is a strategy that involves trading securities based on specific events or news catalysts. Event-driven traders aim to profit from the price movements that occur in response to events such as earnings announcements, mergers, or economic indicators.

Each of these active trading strategies has its own set of risks and rewards, and traders should carefully consider their risk tolerance, investment goals, and market conditions before implementing any strategy. Successful active trading requires discipline, risk management, and a thorough understanding of the markets.

Conclusion

In Active Trading Strategy , a trader can easily enter and exit the trade in the stock market. A trader who can spend their time monitoring the performance of the stock market and make quick gains are involved in active trading. But the risk associated with active trading is high in comparison with long term investments. A sound knowledge of the market and trends is crucial to predict price movements and avoid losses.  

Frequently Asked Questions

What are the advantages of Active Trading Strategy?

1. Active trading offers higher returns compared to traditional long-term investing.

2. Active traders capitalize on short-term price movements to generate profits.

3. Active traders can quickly adapt to changing market conditions.

4. They constantly analyze market trends and news to identify trading opportunities.

5. Active trading provides a sense of excitement and engagement with financial markets.

6. It involves making quick decisions and taking immediate action.

7. Active involvement can be intellectually stimulating and rewarding.

8. It is a constant game of strategy and anticipation, which can be challenging and exhilarating.

What are the disadvantages of Active Trading Strategy ?

1. One main challenge is the high level of risk, including market volatility and potential losses.

2. Successful active trading requires a disciplined approach to risk management and emotional resilience.

3. Active trading demands a significant time commitment for market analysis and trade monitoring.

4. This time commitment may not be suitable for individuals with limited time or other commitments.

5. Active trading requires a certain level of skill and knowledge, including technical analysis and market understanding.

6. Continuous education and learning are essential for success in active trading.

How to Start Active Trading?

To begin short-term trading, follow these steps:

1. Determine the type of short-term trader you intend to be.

2. Research the markets suitable for short-term trading.

3. Select a short-term trading strategy.

4. Practice your strategy using an Enrich Money demo account.

5. Open a live trading account through Enrich Money. Alternatively, you can further your knowledge by exploring various strategies through Enrich Money’s Resources.

Is active trading suitable for everyone?

 No, active trading is not suitable for everyone. It requires a significant time commitment, skill, and knowledge of the markets. The high-risk nature of active trading means that it may not be suitable for individuals with limited time or other commitments. It is essential to understand and be comfortable with the risks involved before engaging in active trading.

Is active trading suitable for beginners? 

Active trading can be challenging for beginners due to its high-risk nature and the need for a solid understanding of the markets. It is recommended for beginners to start with a demo account to practice trading strategies before trading with real money.