Investors using this strategy analyze market trends, study financial reports, and make investment calls based on timing and potential growth.
Active investors may select individual stocks or bonds, constantly adjusting their portfolios to maximize returns. They might engage in active trading vs. long-term investing, speculation, or rely on professional fund managers through active vs. passive fund management.
Some common strategies include:
1. Day trading
A high-risk, high-reward approach where investors buy and sell stocks within the same day, aiming to profit from small price movements. This strategy requires constant monitoring, technical analysis, and always-on portfolio management. Active trading vs. long-term investing is a key consideration here. While day trading offers rapid profit opportunities, it demands significant time and expertise.
2. Swing trading
Unlike day trading, swing traders hold stocks for several days or weeks to capitalize on short-term price trends. This strategy balances elements of active vs. passive investing, as it requires active execution, just over a slightly longer timeframe. Swing traders use a mix of technical indicators and trends to time their trades effectively.
3. Stock picking
One of the most well-known active investing strategies, stock picking involves selecting individual companies expected to surpass benchmark performance. Investors conduct in-depth research on financial statements, industry trends, and economic conditions. Stock picking can lead to high returns, but it also carries substantial risks, making diversification crucial.
> What is portfolio diversification?
4. Hedge funds, actively managed mutual funds
For investors who prefer professional management, options like hedge funds and actively managed mutual funds offer expert-driven portfolio management. Fund managers use active investing strategies to analyze market movements, rebalance portfolios, and seek better returns. These funds typically come with steeper fees, which can eat into overall profits.