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The Different Types Of Active Trading Strategies

Active Trading

Trading is defined as the buying, and selling of securities to make a profit. Whether an individual is an expert, or new to the world of trading, an excellent strategy is required for success. Most active traders believe the larger profits can be made using short-term movements. This type of strategy is dependent on the environment of the market, and the risk associated with the strategy. There are four basic strategies used by active traders.

Swing Trading

Swing trading involves the latest trends. When a new tend begins, it is often accompanied by some volatility in the market as it becomes established. As the volatility occurs in the market, swing traders begin to buy, and sell. Often, swing trades are held for longer than one day, and are based on a technical analysis of the market. Algorithms are uses to decide when a security should be bought or sold. The algorithm does not require an exact prediction of the markets peaks, or valleys, but the market must be moving in only one direction. When the market is sideways, it presents a great risk for swing trading.

Position Trading

Although this type of trading is not considered active trading by many individuals, when an experienced trader employs this strategy, it is a type of active trading. The term charts vary from daily to monthly, and the direction of the current market is determined with a combination of methods. The length of the trade is based on the current trend, and can last anywhere from days to weeks, or longer. This is based on the trend of a security regarding lower highs, or the highest of highs. The trader rides out the highs, and benefits from the movements of both an up, and down market. Although a trend trader watches the market’s direction carefully, they don’t forecast the price levels. They prefer established trends, and exit when the trend breaks. Trading becomes more difficult when the market is volatile with reduced positions.

Day Trading

This is one of the most well-known types of active trading. The name comes from the fact that with this style of trading, securities are generally bought, and sold during the same day. Overnight positions are not used, and all positions are closed within the same day. This type of trading used to be preferable for professional, and specialist traders. Recently, more novice traders are participating in day trading due to the availability of electronic trading.


This is one of the fastest strategies, and exploits gaps in prices caused by order flows, and spreads. This strategy involves buying, or making the spread at the bid price. The sale is made at the ask price, so the difference between the price points can be used for profit. The risks are decreased because a scalper will only hold for a short time. Instead relying on high volumes, or large moves, a scalper looks for the more frequent smaller moves. Trades are made with more frequency in liquid markets because the trades are small. Scalpers prefer calm markets without sudden moves, so they continually make profits on the spreads.

The Trading Strategies

Professional traders use active trading strategies because they provide an edge. The strategies can be improved with a more effective execution, and a lower profit. Many active traders are reliant on software, and hardware to implement their strategies. This cost can affect the profit ratio, although this can be overcome. All active traders must analyze the costs, and risk of each strategy before proceeding to be effective in the current market. Experience in this area is invaluable.