Active Trading


DEFINITION of 'Active Trading'

The buying and selling of securities with the intention of holding the securities for a short duration, typically for no more than one day. Active trading as an investment strategy seeks to take advantage of short-term movements in price, and often focuses on financial instruments in higher demand, such as stocks, currencies, options, and derivatives. Active trading is considered one of the most speculative trading strategies.

BREAKING DOWN 'Active Trading'

Active trading has increased in popularity as the availability of reliable, high-speed Internet connections has grown. Sophisticated computer programs have made making rapid trades easier to execute, and has provided investors with more tools to analyze trends across a broader array of financial instruments. Since active trading involves placing large numbers of buy and sell orders, investors following this strategy often seek brokerages and trading platforms with low or no brokerage fees.

Because security prices are constantly moving up and down, active trading often requires investors to forgo in-depth analysis. Instead the investor may focus on patterns, moving averages, break points and price momentum to determine what the likelihood of an upward or downward movement in price will be.

Active trading is considered speculative in nature as it does entail detailed analysis of a security’s long-term prospects. Due to the high volume of trades and fast-paced environment, investors who are unfamiliar with financial markets or are inexperienced with trading systems may lose money very quickly. Successful active traders must set limits and rules, and be able to keep the emotions associated with price movements separate from day trading strategy.

  1. Currency Day Trading System

    A set of analyses that the forex day trader uses to determine ...
  2. Late-Day Trading

    An unethical (if not illegal) practice of a hedge fund purchasing ...
  3. Active Investing

    An investment strategy involving ongoing buying and selling actions ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following ...
  5. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  6. Indicator

    Indicators are statistics used to measure current conditions ...
Related Articles
  1. Technical Indicators

    A Primer On The MACD

    Learn to trade in the direction of short-term momentum.
  2. Forex Strategies

    Trading Forex Trends With MACD And Moving Averages

    Although based on short-term trading, keeping the long-term picture in mind will help investors trade with the trend.
  3. Chart Advisor

    Bearish MACD Crossovers With A Positive Twist

    These stocks are exhibiting bearish crossovers in their MACD readings, indicating potential short-term weakness, but also longer-term buying opportunities.
  4. Active Trading Fundamentals

    An Introduction To Day Trading

    This article will take an objective look at day trading, who does it and how it is done.
  5. Forex Education

    Trading The MACD Divergence

    Currency traders can use this method to avoid stop-order triggers before the real reversal.
  6. Active Trading

    Adjusting Day Trading Strategies For Different Market Conditions

    Being a successful trader means knowing when to play the market and how. Find out what strategies will have you on top.
  7. Trading Strategies

    Day Trading Strategies For Beginners

    From picking the right type of stock to setting stop-losses, learn how to trade wisely.
  8. Trading Strategies

    4 Common Active Trading Strategies

    Learn four of the most popular active trading strategies and why active trading isn't limited to professional traders anymore.
  9. Active Trading Fundamentals

    How Market Psychology Drives Technical Indicators

    The tenets of market psychology underlie each and every charting tool.
  10. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!