Most people who hop directly into active trading are not successful because they do so without any education. We’re here to help you avoid that trajectory. Read our guide below to see how you can become a profitable active trader using many different educational techniques.
What Is An Active Trader?
We mentioned the term day trader, but that is often used as a colloquial expression for a broader range of active trading possibilities. Here are some different forms of active trading you might pursue:
What Is An Active Trader?
We mentioned the term day trader, but that is often used as a colloquial expression for a broader range of active trading possibilities. Here are some different forms of active trading you might pursue:
- Intra-day Trader: This is the truest form of ‘day trading’ – it implies the purchase and sale of securities within a few minutes to one-day. The goal would be to hold no positions overnight and not put yourself at risk of drastic market changes or losing the capital you accrue daily.
- Swing Trader: Swing traders are typically looking for trades that take a few days or a couple of weeks. Swing trading is a style that suits people who lead busy lifestyles and don’t want to spend their days in front of the computer screen.
- Position Trading: This is a form of long-term trading. It draws many parallels to investing. The main differences being that a position trader has set entries, risk control and proft targets.
You don’t have to stick to one or any of these strategies to be considered an active trader. May people employ one or all of the strategies based on their own financial goals, time available, and portfolio structure. The sole criteria for an active trader are that you are managing your own financial risk on a basis that is not just buying and holding for the long run.
Tools To Be An Active Trader
While anyone can be an active trader, there are terms, resources, and techniques that you should be familiar with before diving in.
- Day Trade: The definition of a day trade in a brokerage is buying and selling the same security within 24 hours. This is important because many brokerages do not allow you to perform more than a few day trades without incurring a penalty.
- Pattern Day Trader: Being labeled as this can get you a “good faith violation” in most brokerages if you do not have $25,000 in your account. You get the label by using more day trades than you have technically available to you, and then your account might get flagged. If you repeatedly violate the PDT rules, it is possible to have your day trading privileges revoked.
- Trading Setup: A trading setup refers to an ideal position to enter a stock. This will often be based on the stock’s chart showing support or resistance, the price action of the stock, and a number of other technical catalysts. Our mantra is that if you only trade great setups, the rest will take care of itself.
- Margin Account: You can apply for a margin account at any dollar amount, but most brokers are more likely to grant you this access with the same $25,000 barrier to entry. Margin is when brokerages allow investors to buy stocks or securities with borrowed funds while collecting interest on it. This can be lucrative if you are successful in trading, but also very risky should you overextend your account.
These are just some of the basic things you should be studying as you progress in an active stock trading career. We have found that hands-on learning with other active traders is one of the best ways to develop your skill sets. After all, trading is done in real-time and not on paper, so having a trading mentor is a great way to see these concepts in action.
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