Most traders learn this lesson at one point or another: even if you are armed with great trading tools and a great strategy, it is hard to follow a...
The Rise of Active Trading - Tradier Blog
As markets continue to grow and evolve, so do the strategies for trading in them.
As markets continue to grow and evolve, so do the strategies for trading in them. More and more investors are looking to trade in their buy-and-hold strategy for a more active approach, realizing that stocks can be traded like commodities. In order to stay ahead of the curve, it's important to know what these new traders are doing with their money and why they're jumping ship from passive investing strategies. We'll take a look at some of the reasons behind this shift and how you might want to start thinking about your own investments in light of this change. There's no such thing as a one-size-fits-all approach when it comes to trading stock - so we hope you find something useful here!
Active Trading: Why is it on the rise?
Active trading is the act of buying and selling securities based on short-term movements to profit from the price movement. The mentality associated with an active trading strategy differs from a long-term, buy-and-hold strategy in that it relies more heavily on capturing trends or market swings rather than simply holding onto assets for extended periods of time. Active traders capitalize on higher payoffs because they can take advantage of opportunities as soon as they arise, whereas those who rely solely on passive investment strategies will have less control over when opportunities come knocking.
Advances in technology have led to a new wave of demand for option strategy backtesting, P&L probabilities, and risk analysis metrics. With so many different features available on financial apps today such as Monte Carlo simulations and delta hedging abilities, people are able to go about their day without having the need to be glued to a computer screen all day long. Nowadays you can even find self-directed auto management options that allow your portfolio strategies to run themselves which is both convenient and productive.
The vast array of options education on the internet has opened up a world without bounds for people who once thought that they couldn't invest and trade stocks like Wall Street pros do. People have also begun to understand that using these tools can offer much greater leverage over straight stock trades when used correctly which offers opportunities to make more money with less risk than ever before!
The many different styles of trading have their own pros and cons in terms of risk versus reward factors. Some traders want a high-risk/high-reward gamble while others are content with the more stable lower returns on investment that come from less risky strategies like day or swing trading stocks.
Different Styles of Active Trading
Day trading is the most well-known style of active investing. It can be considered a pseudonym for all forms of actively managing one's own investment strategy. Day traders, as their name implies, are quick with buying and selling securities within the same day.
Traditionally, day trading is an activity that has been left to professionals. This primarily consisted of specialists or market makers who are experienced in the field. But now with electronic trading avenues opening up for novice traders as well, anyone can partake in this practice and make a profit by tapping into the resources.
Each strategy has its risks and rewards, and it will require a good deal of experience and expertise to figure out which one will suit you best. Fortunately, the proliferation of online trading has simplified this process by allowing new traders to learn from real market pros in a safe environment.
Some assets just don't react as well to prices as others. Stocks, for example, are notoriously unpredictable in the short term due to their high correlations with the overall stock market. Even then, the difference in performance between different securities in the same index can be minute. It's still possible to make a profit using this method of investing but bear in mind, passive trading requires a huge amount of patience and restraint.
The argument for day trading is that it's an efficient and cost-effective way to capture opportunities that are rare. Many opportunities in day trading can be found in the statistics of the market's daily movements. Trading volume on major exchanges is highest on days when new data is released.
If you’d like to enter a more active form of trading, consider the Tradier platform. We offer Commission-free stock and options trading, with no per contract fee, as well as giving you the freedom to choose your own trading platform and free API access to your account. Learn more here.