Kavan Choksi Professional Investor Lists 4 Common Active Trading Strategies
Active trading implies to the act of purchasing and selling securities on the basis of short-term movements, with the aim of making quick profits. As Kavan Choksi Professional Investor says, active trading is in contrast to passive investing where the approach is to purchase securities and hold them for the long term. Active traders tend to use a multitude of tools and strategies that include fundamental, quantitative and technical analysis.
Kavan Choksi Professional Investor underlines common active trading strategies
Active traders are likely to trade a variety of financial instruments, starting from stocks and bonds to commodities and currencies. They might even use options, futures and derivatives for hedging their positions or elevating potential returns. Here are some of the most common active trading strategies prevalent today:
- Scalping: Profiting from small price movements in a security is known as scalping. Scalpers typically hold a trading position for a pretty short period of time, ranging from just a few seconds to a couple of minutes. They strive to generate gains from small price fluctuations. Active traders using the scalping approach must take bid-ask spreads and transaction fees into account. Owing to the frequency of trades made by scalpers, these expenses can add up to a lot, if they are not efficiently managed. Prompt decision making is among the core aspects of scalping. This active trading strategy also requires a great deal of discipline and focus as scalpers have to enter and exit positions quickly in order to take advantage of small price movements.
- Day trading: Day trading is a popular short term trading strategy in which securities are purchased and sold on the same trading day. Traders engaging in day trading try to profit from price movements in a security and generally close all of their positions by the close of the market trading day. A large percentage of the general public believes that day trading is done only by individual investors who work from home or a small office and use their own capital to trade securities. But in reality many day traders also work for major financial institutions like hedge funds, brokerage firms and banks.
- Swing trading: Swing trading involves the process of buying and holding securities for a short period of time. This period can range from a few days to a few months. Swing traders try to gain from short term price movements in the market. They buy securities when prices are low and sell them off as the prices go up. Swing traders need to manage unexpected, sudden moves in the market, and stay informed about market trends and news in order to lower the risk of losses.
- Position trading: Holding positions in securities for an extended period, over multiple months, years, or decades, is known as position trading. The goal of this active trading strategy is to profit from major trends in the market rather than short term price movements. In most cases, position traders use fundamental analysis in order to identify securities that are undervalued or overvalued and hold these positions for the long term, while waiting for the market to correct itself. They may even use technical analysis to identify optimal entry and exit points.
As Kavan Choksi Professional Investor says, there is a potential for higher returns in active trading in comparison to passive investment strategies, making it a good way to grow wealth. By actively monitoring the market and making informed decisions, active traders can take advantage of short term price movements and profit from market volatility.
