Strategy #2: Active trading.Active trading is the act of buying and selling securities based on short-to-intermediate-term movements to profit from the price movements on a corresponding chart. Active traders believe that short-term movements and/or capturing the market trend over intermediate periods are where the profits are made.
There are various methods used to run an active trading strategy, each with appropriate market environments and risks inherent in the strategy. Here are four of the most common active trading strategies.
1. Day TradingDay trading is perhaps the most well-known active trading style for stocks. It’s often considered a pseudonym for active trading itself. Day traders are buying and selling securities within the same day, that is positions are closed out within the same day they are taken, and no position is held overnight.
However, the crypto market, unlike the stock market, is open 24/7 and so the concept of day trading has lost its meaning in the context of cryptocurrencies. Regardless, day trading is done by professional traders, such as specialists or market makers.
Day trading is not on our horizon here at COINBUCKET.ME as it is not a beginner’s activity.
2. Trend TradingSome actually consider trend trading to be a buy-and-hold strategy and not active trading. Trend trading uses intermediate-term charts – anywhere from daily to monthly – in combination with other methods to determine the trend of the current market direction. This type of trading may last for several days to several weeks and sometimes longer, depending on the trend.
Trend traders look for successive higher highs or lower highs to determine the trend of a security. “The trend is your friend,” they say. Interestingly, trend traders aim to benefit from both the up and downside of market movements. Trend traders do not try to forecast any price levels. They look to determine the direction of the market and jump on the trend after it has established itself, and when the trend breaks, they usually exit the position.
This means that in periods of high market volatility, trend trading is tricky because trends do not last as long and break or reverse more frequent. At the early stages of an uptrend, traders are said to buy “long,” and while anticipating a downtrend, traders might “short” the market instead.
Trend trading is very much on our horizon here at COINBUCKET.ME as it lends itself to beginning investors/traders to get a foot in the door.
Read more about trend trading on sites like the following: https://www.turtletrader.com/
From the 1950s into the 1970s, there was one preeminent trend trader with years of positive performance: Richard Donchian. Donchian is the undisputed father of trend following.
Trend traders don’t expect to be right every time. In fact, on individual trades they admit when they are wrong, take their losses, and move on. However, they do expect to make money over the long run. In 1960, Donchian reduced this philosophy to what he called his “weekly trading rule.” The rule was brutally utilitarian: “When the price moves above the high of two previous calendar weeks (the optimum number of weeks varies by commodity), cover your short positions and buy. When the price breaks below the low of the two previous calendar weeks, liquidate your long position and sell short.”
Or, for those not familiar or experienced enough for short selling: “When the price moves above the high of two previous calendar weeks, buy. When the price breaks below the low of the two previous calendar weeks, sell.” Be reminded that this advice might work better in low-volatility markets. Bitcoin is not in one of them.
3. Swing TradingWhen a trend breaks, swing traders typically get in the game. At the end of a trend, there is usually some price volatility and a change of volume as the new trend tries to establish itself. Swing traders buy or sell as that price volatility sets in. Swing trades are usually held for more than a day but for a shorter time than trend trades.
Swing traders, more so than position traders, often resort to trading rules based on technical analysis (TA). These trading rules are designed to identify when to buy and sell a security and are even programmed into bots. While a swing-trading algorithm does not have to be exact and predict the peak or valley of a price move, it does need a market that moves in one direction or another. A range-bound or sideways market is a risk for swing traders.
Besides price action and volume, a swing trader is looking at a few more clues:
Swing trading is also on our horizon here at COINBUCKET.ME as it is a feasible add-on strategy for beginners who already got their feet wet with position trading.
4. ScalpingScalping is a fast-acting activity employed by active traders. It includes exploiting various price gaps caused by bid-ask spreads and order flows. The strategy generally works by making the spread or buying at the bid price and selling at the ask price to receive the difference between the two price points. Scalpers attempt to hold their positions for a short period, thus decreasing the risk associated with the strategy.
Since the level of profits per trade is small, scalpers look for more liquid markets to increase the frequency of their trades. And unlike swing traders, scalpers like quiet markets that aren’t prone to sudden price movements so they can potentially make the spread repeatedly on the same bid/ask prices.
Scalping is not on our horizon here at COINBUCKET.ME as it is not a beginner’s activity.