trend trading is more difficult and its positions are generally reduced. 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. Trend traders look for successive higher highs or lower highs to determine the trend of a security. Here are four of the most common active trading strategies and the built-in costs of each strategy. Positions are closed out within the same day they are taken, and no position is held overnight.
The mentality associated with an active trading strategy differs from the long-term, buy-and- hold strategy. Trend traders look to determine the direction of the market, but they do not try to forecast any price levels. Once price reaches your target level, you buy back the shares (buy to cover) to replace what you originally borrowed from your broker. Typically, trend traders jump on the trend after it has established itself, and when the trend breaks, they usually exit the position. Long and Short Trades, trades can be entered in two different directions, depending on where you expect the market. (To learn more on this active trading strategy, read " Scalping: Small Quick Profits Can Add. These spreads are popular in the grain markets due to the seasonality of planting and harvesting. Thats because a short trade loses value as the market rises, and since price can theoretically continue rising indefinitely, losses can be unlimited and disastrous. The most basic are known as going long, going short and spread trading.