What is the true difference between an active trader and a day trader? They both are usually in and out of a trade in a short period of time and tend to avoid the long term buy and hold strategy that conventional investors find so endearing. They also tend to follow the same guidelines, require discipline and can be very profitable.
In my opinion, the main difference between the two methods lies not in where they start, but where they finish. In my opinion, day traders almost strictly leave their desk for the day flat while active traders have tendency to play the overnight moves. The ability to have this useful technique in your bag of tricks really can come in helpful. In these turbulent times with political, social and economic unrest, it is not unusual for big moves to form on overnight positions. Most people will argue that no one can tell what is going to happen overnight in Europe or Asia but at the same time, no one really knows where the next tick is going to send any security. If someone is able to forecast the next movement like that, than they should have no problem making a great deal of money with whatever type of strategy they want to use. My main point of bringing up these overnight swings is that with the decrease in volatility and volume in today’s market place, it is getting harder for traders to target the profit swings that were so common just three years ago. Now markets do move intraday on news, numbers and all sorts of other conditions but they can easily be caught late or missed entirely. . With historically low volume and volatility, traders of all sorts need to be constantly looking for ways to seek new techniques to profit from. Active trading and the use of swing trades can capture that full overnight spread. If Europe elections fail and you are short in the US market, you are there and you can profit from it. This obviously can be risky especially with overnight margin requirements and uncertainty that is involved in making trade decisions but isn’t that the type of risk traders are looking for?
It is this type of risk that is going to move the market enough and thereby allowing us to capture some of the gains if we make the right decision. During intraday market movements, day traders are limited to the general movements of the market and some occasional movement on news but it is very difficult to catch all of these or even catch them at all. The benefit of swinging trading for active traders can also be a disadvantage since they do not usually get their buying power released back to them to fully take advantage of these intraday trading opportunities. Having increased buying power intraday will of course allow you to have more substantial profits but it is true that you can’t have your cake and eat it too. There are advantages to both day trading and active trading that may benefit different traders with different strategies. Both methods greatly depend on market conditions and volatility. Even though they are very similar methods in trading, they do vary a great deal and those differences will certainly give us topics to argue over for years to come.