Different Types of Equity Traders and their Trading Styles
When trading, you are actively partaking in the act of buying or selling securities and assets based on short term movements and this is generally known as active trading. These short term movements will enable you to profit from the price movements on a short term stock chart. Active traders believe that when moving stock on the short term, they will be able to generate more profit in the correct market trend. While trading however, it is important to remember that each trading method has its own risks and environment factors attached to it.
Let’s have a look at some of the most common types of active trading and what strategies are used to enable optimum profits.
Day trading is the most popular form of active trading and involves buying and selling securities within the same day. Each position is filled by the end of the day and no position will be held overnight. Market makers and novice traders usually make use of this form of trading as is the traditional way of active trading.
An advanced trader will make use of Position Trading and longer term charts to determine the trend of the market direction. Being a position trader is a lot like placing free bets on an online sporting website. As soon as you see that the team or player you are betting on is going to lose the next games, you instantly pull out of the bet. Using a series of analytics along with other methods, a position trader will be able to make use of several methods for a number of weeks in order to effectively determine the current market trends. These traders look for any highs or low points in the current market situation and will jump at the opportunity when the market is at its highest or lowest point. When the market dips out of the high or low it was in, the trader will exit the position and benefit from the changes.
A swing trader works in more or less the same situation a Position trader works in. When a trend breaks, price volatility sets in and during that time, swing traders buy or sell their securities. These trades can be held on for more than a day but not as long as a week or month. Swing traders create a set of rules or algorithms based on technical analysis that are designed to detect when to buy or sell a certain security. These traders depend on a market that moves in one direction or another and if a market moves sideways, it can pose a huge risk for swing traders.
An active trader will usually make use of the Scalping strategy as it involves exploiting various price gaps caused by bid and ask spreads and order flows. When making use of this strategy, traders will buy at the bid price and sell at the asking price to benefit from the difference between the two price points. A Scalper will keep an eye out for small movements and jump on those as small movements happen more often and have much less risk attached to it. As the trading profits are small, Scalpers are usually looking for a number of markets to increase trading profits.
Whether you are a Scalper or a day trader, the markets are forever moving and in order to get the best profit out of your moves, you need to keep moving with the markets to ensure you can jump at the right moment.