What Is an Active Trading?

What Is an Active Trading?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Active trading is a strategy where a trader buys and sells stocks with the aim of benefiting from short-term price movements. Unlike passive traders who may hold onto stocks for a longer period, active traders focus on short-term trades to make profits. This type of trading requires a good understanding of market trends, sharp analytical skills and a high tolerance for risk since the market can be volatile.

Related Questions

1. What is the difference between day trading and active trading?

Day trading is a form of active trading. However, the key difference is that a day trader closes out all positions by the end of each trading day, while an active trader might hold a position for several days or weeks.

2. What skills does an active trader need to be successful?

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Successful active trading requires strong analytical skills, risk management abilities, a deep understanding of the markets, and the discipline to stick to a trading plan.

3. Is active trading risky?

Yes, active trading is generally considered more risky than long-term investment strategies. This is because active trading often involves making numerous trades in a short time, which increases exposure to the market’s short-term volatility.

4. Can active trading be a full-time job?

Yes, some people do make a full-time career out of active trading. However, it requires a significant amount of knowledge, time, and resources, as well as a high tolerance for risk.

5. What tools do active traders use?

Active traders often use tools like charting software to analyze market trends, trading platforms for executing trades, and news services to stay informed about relevant market events.