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Active trading is the act of buying and selling securities based on short-term movements to profit from price variations on a short-term stock chart. The mentality associated with an active trading technique differs from the long-term, buy-and-hold strategy.

The buy-and-hold strategy employs a mentality that suggests that price movements over the long term will supercede price movements in the short term and, as such, short-term movements should be ignored. Active traders, on the other hand, believe that short-term movements and capturing the market trend are where the profits are made. There are various methods used to accomplish an active-trading strategy, each with appropriate market environments and risks inherent in the strategy.

Some genuinely consider position trading to be a buy-and-hold strategy and not active trading. However, position trading, when done by a knowledgable and educated trader, can be a type of active trading.

Position trading uses longer term charts – anywhere from daily to monthly – in collaboration with other approaches to determine the movement of the existing market direction. This type of trade may continue for several days to many weeks and depending on the trend, sometimes longer. Trend traders look for successive higher highs or lower highs to determine the trend of a security. By leaping on and riding the “wave,” position 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 enter the trade after the trend establishes itself and when the trend breaks, they usually exit the position. This means that in intervals of high market unpredictability, trend trading is more complicated and its profits are generally reduced.

For more information on Position Trading for Wealth, see Bud Foxs’ Love 2 Trade Stocks.