Active Traders and Four common Trading strategies
Market trend differs from place to place as investors’ sentiment is not the same overall. Indeed, short-term traders and long-term traders do not react in the same manner. In the same context, active binary trading refers to an act of buying and selling of assets on short term basis.
Traders generate profits from the price movements by speculating on a short-term trend. Short-term traders have different characteristics from those of long-term traders. Long-term traders tend to focus more on a buy-and-hold trading strategy. The long-term trading strategy followers on the other hand speculate about movements over long-term, which can also cross above price movements on the short-term. As a result, many traders have the natural tendency to ignore the short-term movements and thus miss on gaining profits.
Active traders tend to lay more emphasis on short-term movements and they actually study the short-term trades. Many traders believe that if these short-term movements are properly captured, profits can be easily accessed. Traders who actively participate in the market adopt various methods to accomplish their different active trading strategies. On the whole, it is essential to understand the appropriate market environments and risks involved in using all the trading strategies.
BigOption brings to you the common types of active trading as well as the features of these strategies. Active trading is a popular strategy for those who want to have an upper-hand on the overall market.
An insight into the trading strategies:
1. Day Trading Strategy
Active Trading often involves a lot of day traders. Day Trading is the most sought-after active trading style. Day trading involves speculating price movements on a whole day basis. The positions opened by traders usually close out within the same day and thus no positions are held overnight. Normally, professional traders are the ones involved in day trading. They devote a lot of time and allocate resources to specific research in order to excel in the field of trading.
Day trading involves a lot of time as well as focus and in most cases, it becomes hard to concentrate on the current trend. The day trading trend implies speculating price movements within the same day. Nonetheless, a rookie trader can also use the day trading concept as it is now being offered by electronic trading.
There are certain assets which are ideal for trading during the day. Traders are mostly concerned with the specific factors dominating an asset’s trend, namely volatility and liquidity. Volatility measures the anticipated daily price range. The higher the volatility, the higher are the profits and losses. On the other hand, liquidity allows a trader to enter and exit an asset trading at a good price.
2. Position Trading Strategy
Position trading is actually not really considered as active trading by many traders. But if an advanced trader uses position trading, then it can shape up as active trading. As mentioned before, active trading can be really hectic because it requires much more attention and research. Focus is the foreplay in the business and requires ability to be able to segregate emotional feelings from trading.
Position trading refers to the use of longer-term charts which can extend from daily to monthly trading transactions. Position trading also helps to determine the trend of the current market direction. Position trading is the best use for trades which vary from days to several months and usually fluctuates according to the changing trends. Many traders who depend on trends to trade, usually wait for higher highs and lower lows so as to determine the exact outcome of a security.
By doing so, traders aim to extend their profit margin. This will enable them to take profit from both higher and lower trading trends. All of the trading is done specifically to determine the direction of the market and here the trader, does not try to forecast any price level. Volatility on the market highly determines whether the trend of the trade will be as rightly as predicted. If trend breaks, traders normally opt for exiting the current position. When the market navigates in high volatility, trend positions tend to change more, rendering the trading act even more difficult.
3. Swing Trading Strategy
Most of the trading endeavors involve a lot of fundamental analysis. The swing trading strategy is one of the tools that is mostly associated with fundamental trading. Fundamental analysis affect most of the markets but usually take time to deter market fluctuations. Some fundamentals may affect a particular market for a longer time, while some fundamentals do not affect markets on the long run.
4. Scalping Strategy
Scalping strategy is a rapid strategy often used by active traders. A trader using scalping, normally exploit price gaps which are often caused by spreads created by speculations of prices. Furthermore, within scalping, price variations are often caused by order flows.
Order flow occurs when a trader is certain of a price fluctuation for a particular asset and executes a trade, by agreeing to pay the given spread. Many aggressive traders tend to use this first option in order flow. The second option of order flow, is when a trader enters a limit order and executes a trade, BUT by determining the take profit or stop loss, at a given price. If the asset reaches at a specific price, the trade will automatically stop.
Scalping traders mostly execute trades which generate smaller volumes on smaller trends. They prefer to take advantage of the market within smaller price variations in a market. These traders believe that the small fluctuations on a daily basis, can bring a lot of profit if carefully managed and scrutinized.
Fundamentals are often referred to news or economic releases pertaining to economic market. These news may belong to political arena or financial market, but usually involve an interest which can generate subsequent effects on small to large markets.
Fundamentals have the potential of affecting a market ranging from several days or even a week, which can in turn, have considerable price movements. Following such price movements, there are a certain amount of reasonable profit that can be produced.
Price volatility trends determine how the prices will fluctuate on the charts. As and when a trend breaks, this is the time when swing traders step in. The moment a new trend emerges, a price volatility is created and thus traders take advantage of the change so as to trade. The price volatility variation produces opportunities of buying and selling assets as the price volatility sets in. The duration for swing traders is usually for more than a day but lesser than the time that trend trades occur.
Swing traders prefer to follow trading tools which are often based on technical or fundamental analysis. The correct evaluation of fundamentals and technical (normally chart analysis), helps to determine the correct price outcome of buying and selling a security. If exact direction of a market cannot be determined, it becomes necessary to implement the techniques of fundamentals and technical analysis, so as to give the market a nearly precised direction.
These strategies might look long or difficult, but when practiced, all trades become perfect. Do not hesitate to try and test these strategies, especially if you find yourself in the category of Active traders. Binary options trading, is brought to you in the simplest form, to facilitate your trading endeavour.