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The growing preference for active trading approaches

These days, investors are increasingly likely to be in favour of active trading approaches. Whilst trend trading involves making investments to participate in the price movements of the asset over the long term, it should not simply be seen as simply buying and holding but instead must be carried out only when subjected to fundamental analysis.

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A Shorter Term View

Swing trading, meanwhile, sees the trader engaging for a far shorter period, typically only days or possibly weeks. This allows them to benefit from any highs and lows taking place within a longer- term trend, and is ideally suited to being carried out through an multilateral trading facility such as Spectrum. Swing traders are dependent on technical analysis which, when compared to statistical likelihoods, aims to detect and interpret the patterns which can give these traders the confidence needed to predict the upcoming trading sessions. This behaviour has seen swing traders dubbed as buying support and resistance.

A Choice Of Strategy

The decision to adopt a trend or swing trading approach will ultimately come down to the choice of a trader as an individual, and indeed their own experience. Some traders will even adopt a behaviour taking the form of blended swing and trend approaches, and this style of trading is also ideally carried out via Spectrum’s multilateral trading facility. This means that no advice which recommends one of these trading behaviours over another should be entertained seriously: after all, each approach has its pros and cons, and there is a myriad of variables to be considered.

The Question Of Risk

Many people believe that traders who hold their positions for longer are subsequently less exposed to risk, but this view is a misconception, brought about by the fact that a less active trader will be called upon to make fewer trading decisions and will have a smaller volume of trades to carry through to execution. In fact, as far as the exposure of risk for a single investment is concerned, having a longer holding period will do nothing to decrease the level of risk.

Reasons For Passivity

Indeed, it could be that other factors have been at play when encouraging private individuals to adopt a more passive approach. These factors include the transparency of the whole execution process, the execution likelihood, transaction costs or the order book depth. A feeling that the benchmark is too hard to beat is also frequently cited by those who end up staying away from the markets, yet the real issue has been the concerns surrounding the complexity, opacity and costliness of the whole investment and execution process. As a result, some investors have been set up to fail, and by becoming passive investors, they have been disproportionately affected by portfolio losses which might well have been avoided had a more active approach been taken.

Spectrum Can Guide Active trading

With 24hour access, five days a week, Spectrum’s multilateral trading facility has seen unbroken growth since its launch last year, supporting our view that making markets truly accessible and transparent can effectively remove the perceived barriers to an active trading approach. With Spectrum’s technical, legal and operational infrastructure, those looking to move away from passive trading behaviours can do so fully supported, and experience the benefits for themselves.

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