Random Notes on Active Trading

Random Notes on Active Trading

Active trading is basically the buying and selling of securities, namely stocks, ETFs, REITs and Index Funds on the Stock Market, within short time frames; thus taking advantage of short-term price changes.

Active trading includes day trading, swing trading, scalping and in some aspects, position trading, although position trading can mean holding stocks for months to a year.

Most of the strategies involving active trading are dependent upon reading stock charts and technical analysis, especially charts that have much shorter time frames, like a daily chart, 4 week chart, 3 month chart, etc. Relying on breaking news or any important news on a given stock is very important as well. And sometimes it is necessary to following quarterly earnings reports in order to take advantage of potential upward swings and gap ups.

Active trading requires one to follow a watchlist of stocks closely, analyizing their intraday movements, as well as weekly and monthly price changes. Buying-the-dip is a common practice to get into a stock position, watching the stock go up (hopefully) and selling the stock for a good profit when a desired goal has been achieved.

Active trading doesn’t rely on quarter and annual reports of a given company. There is no need to do fundamental analysis on a stock, although an investor could invest longterm on a given stock, while at the same time holding another position on that stock that is meant to be a short-term, active trade. As there is an advantage to have 2-3 positions of one stock, treating each position with a different strategy; short-term, intraday, long-term.

Active trading takes advantage of technical indicators such as VolumeAverage, moving averages, MACD, RSI and other indicators. Candlestick charts are very commonly used by active traders, so knowing all aspects of how charts and indicators work is crucial to success.

One can be an active trader and a value investor at the same time. Sky’s the limit, and an active trader can have multiple accounts, treating each one different.

It is important to have watchlists, and multiple watchlists with different strategies in mind will help to indentify stocks and how one would trade them or invest in them.

An active trader who day trades as well as swing trades will need to switch gears, so it’s best to have a sophisticated trading platform, with many ‘saved’ setups for various types of active trading.

Risk management is very important, as a strategy will have to be developed in order to handle scenarios in which a stock heads South and drops its stock price, or when the entire stock market begins to tumble.

Image by Gerd Altmann from Pixabay

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randomguru

Portfolio Manager & Musician

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