The best way to understand active trading is to differentiate it from buy-and-hold investing, which is based on the belief that a good investment will be profitable in the long term.
A buy-and-hold investor ignores day-to-day market fluctuations and is indifferent to short-term investing for two main reasons:
- He or she believes any momentary effects of the markets are really minor compared to the long-term average
- Short-term movements are nearly impossible to predict
Profile of an Active Trader
Active traders, however, see an average long-term return, not as an insurmountable standard, but as a run-of-the-mill expectation. To exceed the standard, or outperform the market, active traders believe they must look for the profit potential in the market's temporary trends, which means trying to perceive a trend as it begins and to predict where it will go in the near future.
Active Traders and Timing the Market
For active traders, the importance of the market's short-term volatility is magnified – these market movements offer opportunity for gains. Their style determines the time-frame for looking at trends. Some look for these within the span of a few months, some within a few weeks, and some within a few hours. Traders who analyse a shorter time-frame will be more active, and thus execute more trades. The more a trader strives to buy and sell at the extremes, the more aggressive – and risky – is his or her strategy.
Maximizing returns or outperforming the market isn't just about reaping profits; it's also about avoiding losses. Active traders will look for any signs that the security may take a turn for the worse. With this in mind, they try to time their exit the investment and seek profits elsewhere. Long-term traders, on the other hand, stay invested in the security if they have confidence in its value, even though it experiences a downward shift – the buy-and-hold investor will tolerate some losses that the active trader believes are possible to avoid.
Benefits We Offer to an Active Trader
Real-time account updates, real-time quotes
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Stock Centre provides extensive coverage of more than 10,000 Canadian and U.S. companies, as well as access to stock and index filters, analysts' recommendations, earnings estimates and company financial reports.
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Our fund-filtering tool will help you compare funds, in addition to providing Globefund 5-Star ratings, fund profiles, charts, price history and more.
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CIBC Mobile Brokerage
With the CIBC Mobile Brokerage App, you can bring the markets with you, anywhere you go. Download the App to monitor your investments, trade stocks, get quotes and more—directly from your smartphone.
Our comprehensive range of products and services can help you prepare and implement financial strategies to address your goals. You can open a CIBC Investor’s Edge account online or by calling our Investment Representatives at 1 800 567-3343.
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