Many methods are used by different people during trading. There are strategies that might work for one but won’t be as successful for another. One of the more common strategies that some people use is active trading.

What Is Active Trading?

A simple definition for the active trading strategy is that it is the opposite of the “buy and hold” strategy. Active trading usually involves ongoing buying and selling of securities and investments on a more continuous basis. Active traders usually closely monitor market activity in order to discover instances to exploit the market for possible profitable gains. Active trading aims for short term gains while the buy and hold strategy seeks profits in the long term.

Advantages Of Active Trading

Active traders focus on the short term gains of their investments. This strategy calls for closely monitoring and keeping track of investments for significant short term movements. The active traders look for possible short term gains of their investments and is always on a constant process of buying and selling in the market. It provides them the opportunity to be part of temporary hot trends for taking profits and may also help them avoid holding on to under-performing assets on their portfolio.

Disadvantages Of Active Trading

There may also be disadvantages that traders have to deal with following an active trading strategy. One of them is that it may take more work and effort on the part of the active trader using this type of strategy. Considerable gains can only be made using this strategy through constant monitoring of the market. This also means keeping track and monitoring market changes almost on a daily basis. It might also be more stressful since this type of strategy may be considered as fast paced.

Another disadvantage is that potential risk of losses is heightened since market actions by most active traders rely on what may be happening today. Trading in markets that may be quite unpredictable most of the time can multiply the risk that active traders have to face on a daily basis. This strategy also requires quite a substantial knowledge of the market and the art and science of trading. Market experience may also be necessary for the active trader to be successful since it requires a more accurate market prediction in order to enjoy market gains. This accuracy can only be assured through years and years of market experience and knowledge.