An active trader, on the other hand, isn't keen on exposing his or her investments to the effect of short-term losses or missing the opportunity of short-term gains. It's not surprising then, that active traders 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, the trader realizes that he or she must look for the profit potential in the market's temporary trends, which means trying to perceive a trend as it begins and predict where it will go in the near future.
Remember that even though the security moves upward over time, it experiences many smaller trends in both directions along the way
Performance and the short term
Traders are 'active' because for them the importance of the market's short-term activity is magnified - these market movements offer opportunity for accelerated capital gains. A trader's style determines the time frame within which he or she looks for trends. Some look for trends within a span of a few months, some within a few weeks, and some within a few hours. Because a shorter period will see more definitive market movements, a trader analyzing a shorter time frame will be more active, executing more trades.
A greater number of trades doesn't necessarily equal greater profits. Outperform the market doesn't mean maximizing your activity, but maximizing your opportunities with a strategy. An active trader will strive to buy and sell (or vice versa in the case of shorting) at the two extremes of a trend within a given time frame. When buying a stock, a trader may try to buy it at the lowest point possible (or an upwards turning point, otherwise known as a bottom) and then sell it when there are signs that it has hit a high point. These signs are generally discerned by means of technical analysis tools, which we discuss below. The more the trader strives to buy and sell at the extremes, the more aggressive - and risky - is his or her strategy.