4 Common Active Trading Strategies in India's Stock Market

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Introduction: Active trading in the stock markets refer to trading which is done at frequent intervals with the aim to make regular profits from the market movements. Active traders are usually those who understand that to earn from the markets, they need to dedicatedly work towards it.

With the change in attitudes towards stock market trading, it is no longer being seen as a gamble, but rather a profession, which requires research, study, constant attention and patience. With the advancements in the technology as well, stock market trading has become much easier, with the help of necessary tools and trading platforms which help traders place the trades themselves without the need to depend on their brokers.

Hence, if you too are inclined to start trading in the stock markets as an active trader, then now is the best time to begin, as the markets give opportunities to traders to earn money, every day, every week and every month. If you have made the decision to start trading and have set up your demat account, then you can start studying about trading strategies and you can gradually work towards implementing them.

1. Day Trading

Intraday trading can be defined as buying and selling of financial instruments such as stocks, shares, currency, commodity etc. on a daily basis without taking ownership of the securities overnight. Both the actions of buying and selling of a particular financial instrument are carried out within the trading hours of a particular market or exchange. In case of stock markets in India, the intraday trading orders are placed between 9:30am and 3:30pm.

When it comes to intraday trading, it is important to remember that you should not follow a tip which is not based on a proper research. It is extremely important to trust well researched trading advice given by certified investment advisors before betting your money on a trade.

You should understand about the timing of entry in the markets, placing a target and a stop loss, using the right type of order etc. Also, you should choose the right stock for investments and should not trade in stock which has no liquidity in it.

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2. Swing Trading

Swing trading strategy for active traders involves holding of the shares, stock or other financial instruments for a period ranging from few days to few weeks. In this form of active trading, money stays invested in the markets for a longer period as compared to intraday trading but for a shorter period as compared to medium term or long term investing. In swing trading, the entire amount of the purchased securities needs to be deposited in advanced.

Swing trading strategy comes into play when a market takes on a trend. If the markets are consolidating or are range bound, then swing trading strategy does not help since the markets are not showing any movement.

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3. Trading the News Strategy:

This strategy of trading is also similar to swing trading. However, the approach between these two is quite different. In trading on the news, traders often bet on the impact of the outcome of a particular event on the markets and place their trades before the event has happened.

For example, a positional trader who feels that the upcoming union budget would majorly support the country’s healthcare sector, would buy the stocks from this sector in advance, slightly ahead of the actual day of budget so that when the budget announcement is done, he can capture the effect of the announcement by making profits. If his prediction about positive news for the healthcare sectors turns out to be true, he would  earn profits and sell his stock once it appreciates as a follow up of the news, however if his prediction is wrong, he would have to exit his position at the earliest.

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4. Scalping Strategy

The holding period in this form of trading strategy is the shortest as traders use the difference in the ask price and bid price to make small profits across multiple trades. Scalping does not involve major price movements, but instead aims to take profit from the tiny market movements as the prices jump from one to another. Unlike swing trading, scalping serves well in markets where there is not much trend or sudden movement, so that these small movements remain small and can be used for taking small scale profits.

In scalping, there are multiple trades places within a single day, more than the number of trades placed in the intraday trades. With the advancement of technology, scalping is done using robots and machines which can reduce the holding time from minutes to few second and mini seconds, which is called high frequency trading or ultra high frequency trading.

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CONCLUSION:

Each trading strategy serves a different purpose and uses different forms of analysis and research. For example, in intraday trading, technical analysis serves best, whereas the fundamental analysis would be more useful for trading on news strategy. For swing trading, a combination of both fundamental and technical analysis would be useful, whereas for scalping, the quantitative analysis tools can be quite useful. It is best that as a trader you understand everything about the trading strategy you choose. You can also take help from a registered investment advisor to guide you through your investments.

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