Often film or tv depicts the lifestyle of a trader as one filled with abundance and wealth. Painting a picture that trading is an easy career full of luxurious rewards. More often than not, the actual stresses and rigors are overlooked. Active trading involves long hours performing research, net loss trades, and psychological changes necessary to become a trader. It’s a more challenging lifestyle than it looks but proves worthwhile for those who stick it out. To get a better understanding, let’s take a look.
What is active trading?
Active trading refers to buying and selling securities over a shorter period to net a profit. There is no set amount of time, only entry and exits that work within the trader’s risk management profile. Trading strategies such as day trading and swing trading are effectively active trading techniques employed by all levels. These trading styles rely on high liquidity markets that let traders enter and exit positions relatively quickly as an active trader relies on price action and technical analysis for trades.
Sometimes investors want comparisons of trading styles. In the case of active trading vs. passive trading, the former is a more hands-on approach. While the latter is hands-off. This means active trading involves the constant movement of assets and rearrangement of portfolio holdings to consistently capitalize on market opportunities. A passive trading approach is less involved and not managed nearly as closely. It is focused on the long-term growth of assets.
One can take many strategies when attempting to approach trading in the financial markets. Out of all of them, what is considered active trading?
Day trading, scalping, swing trading, and position trading are all active trading methodologies. A day trader buys and sells assets simultaneously, generally looking to take advantage of momentum or a catalyst. Scalpers are high-volume traders that attempt to capture profits from price changes. This approach typically uses leverage-based trading. Scalping also works well for automated or algorithmic trading systems.
Swing and position trading are very similar and hold positions for more extended periods. Sometimes days, weeks, or months. Both styles are looking for more significant price movements. A swing trade is typically held for days, and the trader is looking to exit relatively soon. A position trader attempts to hold on longer and see more significant growth. These are generally trading styles employed by longer-term investments.
Active trading daily routine
For some, routines can be mundane and boring. For anyone interested in active trading, daily routines are a vital necessity for seeing success. A trader’s daily routine can literally make or break the bank. Without it, you won’t know what the market is doing or where potential opportunities lie. A typical day trader’s routine follows a simple pattern. A pattern that allows them to keep abreast of what’s going on by reading overnight news to gauge potential, scanning the markets for ideas, creating a watchlist, documenting trades, reviewing performance, and even preparing for the next day.
Here are a few days in the life examples of several prominent traders:
My perfect trading day consists of gathering the resources I need to be successful, better understanding the markets, holdings, or potential ideas, gaining confidence in my trading abilities, and finding profitable trades. My goal is to be the best possible trader, earning the perfect income that allows me the freedom to be the best version of me that I can possibly be and create the best possible outcomes.
My daily trading routine:
- Clear mind
- Set the intention for the day
- Quick news scan
- Scan for stocks
- Update daily trading analysis
- Review strategy, notes
- Update notes
I got into active trading because, ultimately, I want to help shape a world that unlocks the power and potential of humanity. I want to grow to become a company that invests in social causes and finds ways to have a lasting impact on the world. A company that literally pays it forward.
Active trading strategies
The four most common active trading strategies include day trading, scalping, swing, and position trading. While all can prove profitable and a part of most traders’ toolkits, what is the best method of active trading for beginners? There simply isn’t a right or wrong answer. Trading styles rely on you and your personality. This means your temperament, ability to manage risk, and emotions all play a part. A trader’s strategies may incorporate one or all of those methods mentioned.
When I set out to plan my trading journey, I knew I had to have an overall plan. That plan consisted of a strategy that took calculated risks to realize more significant gains. My approach is built on the backbone of being informed, doing due diligence, making assumptions, testing ideas, and taking suitable risks. With all of that work in a place, I also rely on intuition.
My active trading strategy:
- Research & analysis
- Looking at inputs
- Researching info on lists
- Diving deeper into companies
- Fundamental analysis
- Understanding patterns
- Technical analysis
- Forming ideas
- Strategy & rules
- Swing / day / hold
- Position size
- Price point
Alongside active trading strategies and daily routines, trading rules are a core component in a day trader’s toolbox. Trading rules are guidelines you establish to protect yourself from yourself. When you enter into trading, you’re theoretically acting as a business whose products are their strategies. If that business wants to remain in business, established guides help keep everything in order. Much like trading styles and techniques, trading rules are rather personal. There are some general rules of thumb to live by. But overall, it’s best to tailor this to your temperament.
If you make trades that pump your adrenaline, walk away. Adrenaline boosts can be significant, but they can also make you get aggressive. An aggressive trader is likely to make riskier decisions. After a trade that amps you up, try to take some time to cool off and clear your mind. Heck, even hanging it up for the day isn’t a bad idea when all else fails.
The biggest allure of trading is the profits and lifestyle it affords when done correctly. Therefore reasonable risk to reward ratios are essential to ensure longevity. Use a 2:1 ratio to start. Always plan for risk and set losses before considering profits. Make sure to set a max loss always.
Sometimes, it’s essential to set a max loss for the day or longer. Trading can be a risky business and can drain an account instantly. This leads me to the following rule, if a trade goes south, get out fast! Do not stay in a trade that is losing. Losing is all part of the business. The quicker you get out and the more capital you conserve, the longer you’ll be trading.
Ten active trading commandments:
- If the trade goes south, get out fast!
- Take profit
- Always consider risk
- Keep emotions in check GREED, namely
- Practice money management
- The purpose of trading is to make money
- 75% of traders lose because of mindset
- Overcome fear – learn it, be aware of it
- Normal leads to broke
- Buy high / sell higher
Active trading resources
If you’re interested in becoming a day trader, then active trading courses or active trading books are a great place to start. While there are many different sources that you can use, it’s always best to find a product that you can trust or get a review from a friend. Which is what I did. After doing my own research and trying a few things on my own, I recommend a few resources.
They have a ton of free educational content. The paid content is worth its weight in gold. All of the video courses contain hours of real-life examples that you can watch repeatedly. Not only that, access to the community comes with a bunch of other perks as well.
School of Pipsology
The School of Pipsology is a great free resource for anyone that wants a self-guided, light-hearted, fun, and approachable method to understanding the basics of financial markets. Even though this course advertises itself as a Forex resource, its content is relevant to all markets.
The Art of War
This book influenced many legendary battles and how people should succeed within competitive situations outside the battlefield. Many companies require this book because they know that its wisdom is powerful.
Trader Construction Kit
A comprehensive resource for anyone interested in active trading. Trader Construction Kit is a practical guide to developing the skills and techniques employed by professional traders.
Technical Analysis of the Financial Markets
An updated landmark bestseller. Teaching thousands of technical analysis concepts and their application in the futures and stock markets. The second edition features new material on candlestick charting, intermarket relationships, stocks, and stock rotation, plus state-of-the-art examples and figures.
The Daily Trading Coach
This book helps to provide the tools to help you prioritize your trading goals and your life—and become your own trading psychologist. There are 101 lessons. Each lesson identifies an everyday challenge traders face, an approach to overcome, and a suggested solution.
Trade, the Trader
You’re not just trading companies that deliver goods or services. You’re trading against other traders who care about only one thing: taking your money.
Trading in the Zone
Uncover the underlying reasons for lack of consistency and help overcome the ingrained mental habits that cost money. Learn to look beyond random outcomes, understand the realities of risk, and be comfortable with the “probabilities.”