REVIEWING FOUR ACTIVE TRADING TECHNIQUES

Numerous methods are used by active traders to generate profit on short-term movements. Take a look at four of the most common strategies, as well as the costs and risks associated with each technique.

Day Trading. Being the well-known trading style, day trading is frequently considered a pseudonym for active trading itself. It refers to buying and selling securities on the same day. Positions are closed out within the same day these are obtained; hence, no position is held overnight. Before, day trading was only open to market makers or specialists. But, thanks to electronic trading, this trading strategy has become available to novice traders.

Position Trading. In essence, position trading involved buying and holding. It uses longer term charts, which ranges from days to month, and is combined with other methods to find out the trend of the present market direction. Depending on the trend, this may last for several days to several weeks or even longer. Traders look for successive higher returns or lower highs to know the trend. By entering and riding the "wave", traders aim to benefit from market movements. Also, they seek to determine the overall market direction, but they do not attempt to predict any price levels. Trend chasers normally exit the position when the trend breaks, making trend trading more difficult and reducing positions in times of high market volatility.

Scalping. One of the fastest active trading techniques, scalping entails cashing in on price changes due to bid/ask spreads and order flows. It seeks to buy at the bid price and sell at the ask price to gain profit on the spread of these prices. Traders cling to the positions for a short period to reduce the risk associated with scalping. Also, they do not capitalize on making huge moves or moving high volumes, but on small moves and smaller volumes. In other words, small, frequent trading. Traders search for more liquid markets and implement a strict exit strategy to prevent huge losses.

Swing Trading. Expect swing traders to get in the game once a trend emerges. Usually, there is some price volatility at the end of a trend because a new one tries to establish itself. Traders buy and sell as the price volatility kicks in. Although positions are held for more than a day, the duration is shorter than trend trades. They often formulate a bunch of trading rules based on fundamental or technical analysis to figure out when to purchase and sell a security.