Active traders buy and sell securities based on short-term movements capturing the market trend where the profits are made. There are several methods that can be used to accomplish an active-trading strategy as follows:
Position trading makes use of longer term charts say 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 even longer depending on the trend. Typically, trend traders will jump on the trend after it is established, and then exit the position when it breaks.
This is the most well-known active-trading style. As the name implies, this is the buying and selling of securities within the same day. Positions are closed out within the same day they are taken, and no position is held overnight. In most cases, day trading is done by professional traders however electronic trading has opened up the practice to any trader.
This is one of the quickest active trading strategies. It includes exploiting various price gaps caused by bid/ask spreads and order flows. Scalpers attempt to hold their positions for a short period, thus decreasing the risk associated with the strategy. A scalper try as much as possible to take advantage of small moves that occur frequently and since the level of profits per trader is small, they try to look for more liquid markets to increase the frequency of their trades. Scalpers, also prefer markets that aren’t prone to sudden swings to enable them make spread repeatedly on the same bid/ask prices.
Swing traders buy or sell as price volatility sets in. Swing trades are usually held for more than a day but for shorter term than trend trades. Swing traders usually set trading rules base on Fundamental or Technical analysis. These trading rules or algorithms are designed to identify when to buy and sell a security.
There are risks and costs that are associated with each of the aforementioned strategies hence the need to have full information before deciding which one is the best to use.