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2022-03-08 • Updated

A Guide to Active Trading Strategies

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There are two teams in the market: active traders and investors. Traders don’t want to wait too long and prefer a constant process of selling and buying financial assets. Investors buy and hold instruments for years, choosing a much longer but safer way.

Currently, more and more traders opt for active trading strategies to make a profit faster. Let’s explore the reasons for their choice and the difference between buy and hold and active trading. After reading this article, it will be easier to define your trader’s type and select the most suitable strategy.

What is Active Trading?

The active trading definition refers to the act of buying and selling financial instruments to profit on short-term price movements. There is no precise time measurement for active trading since the different types of traders and their strategies that we’ll consider in this article.

However, all active traders usually choose highly liquid markets and shorter timeframes. They beat the market. Due to relatively small price changes in the short term, they typically open positions with lots of volumes, allowing them to easily get into and out of trade and use various order types depending on the situation.

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Active trading vs. Buy and hold

Compared with active trading, buy and hold is a passive strategy that supposes opening trades for years, even dozens of years. People of this approach, also called investors, buy positions at a lower price, expecting the long-term growth of the market and asset price. Their choice of instrument relies more on fundamental analysis.

Passive trading is slow and steady and doesn't need to track the charts regularly. However, it's not enough to buy an asset without a deep market understanding. Learning, company research, and asset awareness are necessary for successful investing. Buy and hold is considered as a more safe way to earn on the market. But why do so many market members choose active trading still?

In our fast world, not everyone is ready to wait for a profit for years. This is why more people choose active trading over buy-and-hold strategies. Active traders draw more upon technical analysis and always stay tuned with the economic events and the charts. Applying Stop Loss and Take Profit is necessary to protect money trading actively since the price changes can be too quick. This can boost your profit fast respectively.

Another common reason is the flexibility of active trading that gives opportunities to earn in different market situations. Thus, in the case of an economic recession, when the prices move down inevitably, investors can only wait for the price reversal. In contrast, active traders can use it for their benefit and profit from both uptrend and downtrend. The volatility is a friend of every active trader. This advantage opens for traders the door to the market in any conditions.

One more strength of active trading is the fundings liquidity. In other words, traders can withdraw their income whenever they want, while investors should keep their investments for at least a year and longer.

Active traders can make a profit within weeks, days, even seconds. It depends on the trader’s type and chosen strategy. Let’s take a closer look at the most widespread strategies of active trading.

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Top active trading strategies

Among a huge variety, there are four basic active trading strategies that we’ll consider in this article. Plus, we’ll give you advice on suitable timeframes for each type.

A day trader

Day trading strategy. This style means traders get in and out of trades within the same day. Those who have enough daytime to analyze the market and adjust the position by its changes. Also, day traders should have an efficient exit strategy to close positions profitably till the day’s end. So, it’s better to pick from the 5-minute to 1-hour timeframes. Sometimes the 4-hour or daily timeframes can also fit to analyze the market and close orders before night.

A swing trader

Swing trading strategy. The swing traders, relying on technical and fundamental analyses, enter longer trades for days or a few weeks. Traders of this style are ready to spend more time expecting bigger profits from one trade. They use from the 1-hour to weekly timeframe.

A position trader

Position trading strategy. This style supposes entering a trade for a long time – weeks or months. It requires a deep market understanding as well as technical and fundamental analyses. All timeframes higher than the daily one are good for this style.

A scalper

Scalping strategy. Traders of this style make flash-like decisions within minutes and even seconds. Also, a good scalper should be disciplined and keep calm to prevent panic. The scalping aim is to open a position at the busiest hours of the day, trade the significant volumes, and earn on a small price movement, then exit the market immediately. The best timeframes are from 1-minute to the 15-minute.

Find your strategy, learn it, practice. And if a chosen strategy will work perfectly, you can move on to another one. Ready to go active trading? We just prepared some tips to help start your journey.

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Becoming an active trader

Everyone who has decided to trade actively should know the reason and goal. They might be different, but the most widespread is becoming more financially free, forgetting about office, running your own business, and finding more time to do great things. So, set your goal and make your first step into trading.

Without understanding the market and its processes, getting involved in active trading is dangerous. Arm yourself with theory and knowledge, learn successful examples, research the market and trends.

Then, select your trader’s type, build a strategy, and an acceptable timeframe to start practicing. Here is important to choose a reliable broker that offers favorable trading conditions and provides traders with educational materials and demo accounts. Hone your skills and strategy with demo trading until you feel confident to trade real.

After entering the real market, your first closed order can bring a profit and make an active trader happier. Anyway, even if the first trade is closed with the losses, it's important not to give up. You can always go back to the demo from real trading and vice versa. With a proper approach, you’ll see results.

The selection of a trading strategy is the primary and vital step on every trader's path. Mixing strategies is one of the most popular and gainful methods to trade actively. You can apply an appropriate timeframe to a specific trading style and get a profit faster.

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