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4 Common Active Trading Strategies

Active trading is the act of buying and selling securities based on short-term movements to profit from the price movements on a short-term stock chart. The mentality associated with an active trading strategy differs from the long-term, buy-and-hold strategy found among passive or indexed investors. Active traders believe that short-term movements and capturing the market trend are where the profits are made.

Active trading is a popular strategy for those trying to beat the market average.

There are various methods used to accomplish an active trading strategy, each with appropriate market environments and risks inherent in the strategy. Here are four of the most common active trading strategies and the built-in costs of each strategy.

Key Takeaways

  • Active trading is a strategy that involves ‘beating the market’ through identifying and timing profitable trades, often for short holding periods.
  • Within active trading, there are several general strategies that can be employed.
  • Day trading, position trading, swing trading, and scalping are four popular active trading methodologies.

1. Day Trading

Day trading is perhaps the most well-known active trading style. It’s often considered a pseudonym for active trading itself. Day trading, as its name implies, is the method of buying and selling securities within the same day. Positions are closed out within the same day they are taken, and no position is held overnight. Traditionally, day trading is done by professional traders, such as specialists or market makers. However, electronic trading has opened up this practice to novice traders.

2. Position Trading

Some actually consider position trading to be a buy-and-hold strategy and not active trading. However, position trading, when done by an advanced trader, can be a form of active trading. Position trading uses longer term charts – anywhere 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 sometimes longer, depending on the trend.

Trend traders look for successive higher highs or lower highs to determine the trend of a security. By jumping on and riding the “wave,” trend traders aim to benefit from both the up and downside of market movements. Trend traders look to determine the direction of the market, but they do not try to forecast any price levels. Typically, trend traders jump on the trend after it has established itself, and when the trend breaks, they usually exit the position. This means that in periods of high market volatility, trend trading is more difficult and its positions are generally reduced.

3. Swing Trading

When a trend breaks, swing traders typically get in the game. At the end of a trend, there is usually some price volatility as the new trend tries to establish itself. Swing traders buy or sell as that price volatility sets in. Swing trades are usually held for more than a day but for a shorter time than trend trades. Swing traders often create a set of trading rules based on technical or fundamental analysis.

These trading rules or algorithms are designed to identify when to buy and sell a security. While a swing-trading algorithm does not have to be exact and predict the peak or valley of a price move, it does need a market that moves in one direction or another. A range-bound or sideways market is a risk for swing traders.

4. Scalping

Scalping is one of the quickest strategies employed by active traders. It includes exploiting various price gaps caused by bid-ask spreads and order flows. The strategy generally works by making the spread or buying at the bid price and selling at the ask price to receive the difference between the two price points. Scalpers attempt to hold their positions for a short period, thus decreasing the risk associated with the strategy.

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Additionally, a scalper does not try to exploit large moves or move high volumes. Rather, they try to take advantage of small moves that occur frequently and move smaller volumes more often. Since the level of profits per trade is small, scalpers look for more liquid markets to increase the frequency of their trades. And unlike swing traders, scalpers like quiet markets that aren’t prone to sudden price movements so they can potentially make the spread repeatedly on the same bid/ask prices.

Costs Inherent With Trading Strategies

There’s a reason active trading strategies were once only employed by professional traders. Not only does having an in-house brokerage house reduce the costs associated with high-frequency trading, but it also ensures better trade execution.     Lower commissions and better execution are two elements that improve the profit potential of the strategies.   Significant hardware and software purchases are typically required to successfully implement these strategies. In addition to real-time market data, these costs make active trading somewhat prohibitive for the individual trader, although not altogether unachievable. 

This is why passive and indexed strategies, that take a buy-and-hold stance, offer lower fees and trading costs, as well as lower taxable events in the event of selling a profitable position. Still, passive strategies cannot beat the market since they hold the broad market index. Active traders seek ‘alpha’, in hopes that trading profits will exceed costs and make for a successful long-term strategy.

Smart RoboX automated trading device with broker TradeLTD

Trading has not only incredibly evolved over the last century, but also distinguished itself by the introduction of some modern revolutionary software solutions. One of the outstanding inventions designed to simplify and improve the life of a trader is RoboX. This smart automated trading device, invented by Tradency Inc., uses a unique algorithm for creating a set of trading strategies that are best suited for you. TradeLTD is one of the few brokers to provide this first-class service!

What is RoboX, and how does this service work?

RoboX is a smart trading platform based on a number of strategies developed by Tradency Inc., the first provider of financial technology. Founded in 2005, the company has made an invaluable contribution to the field of automated trading and social trading. Another successful service developed by this software provider, called Mirror Trader, is a modern trading platform that can also be found on TradeLTD website.

RoboX is a product designed for investors who want to diversify their portfolio by entering the forex market at the right time and with a minimum of knowledge. RoboX works on the basis of a unique algorithm that takes into account the features of your trading profile and a base of unique strategies and develops a strategy that suits your needs. The base of strategies is periodically updated, this happens automatically, and the underlying RoboX algorithm selects only the most profitable strategies.

How RoboX Can Help You Make Money

RoboX has several advantages that will help you successfully trade in any market conditions, regardless of the level of your experience. How is this possible? To develop the ideal set of strategies for you, in addition to your personal trading preferences, the algorithm takes into account your willingness to take risks. Before using this service, you will need to answer a number of questions, in accordance with which the characteristics mentioned above are determined. After that, a special algorithm proceeds to scan the “Tradency” strategy database and selects the necessary ones in accordance with the given rules.

Tradency has the largest strategy base in the world! Each set of strategies stores only the most suitable ones, and they are periodically automatically updated. This means that you will be involved in strategies that have the highest chances to bring you profit and are consistent with your willingness to take risks. You no longer have to worry about solving the awesome task of finding the perfect way to achieve your trading goals!

RoboX – the latest trading service provided by TradeLTD

As a broker seeking to provide you with the latest technology, TradeLTD has included the widely recognized RoboX service in its range of offers. Immediately after filling out a short questionnaire, you can enjoy an individualized set of trading strategies that will simplify trading and help you achieve the best results. In the safe professional and high-class trading environment offered by TradeLTD, with the assistance of an experienced team with RoboX, you can take your investment to a new level.

Regardless of your experience and knowledge in the field of the Forex market, a personalized set will include only the best strategies that exactly meet your needs, preferences and risk appetite. Having spent a minimum of time and effort, you will be able to trade in the forex market as a professional, and evaluate the income opportunities that await you in the largest financial market in the world!

This service was developed for use on the foreign exchange market and contracts for difference, assets involving high levels of risk. Please note that despite the fact that you can subscribe to RoboX directly through a broker, the product is the property of Tradency Inc. and TradeLTD is not responsible and does not control the signals generated by the algorithm and the transactions resulting from them.

FORTRADER magazine experts

FORTRADER Magazine is a large team of experts in trading in financial markets. Traders, managers, investors, programmers, testers, technical administrators – we all work for you every day for many years. Sometimes we write articles together, then the whole journal becomes the author.

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