In the stock market, the basic definition of an active trader is someone who buys and sells stocks with the intention of making money in the short term. Active traders typically don't hold individual stocks for many months or years, and generally do not focus upon long-term economic trends.
The Internal Revenue Service's definition of a "trader" is a person who aims to earn money from price fluctuations which occur throughout the day, and remains regularly active in the market. Other people who buy and sell stock are instead defined as "investors".
An active trader who seeks to buy and sell the same stock shares during a single day often fits the definition of a "day trader". Day traders have the potential to make (or lose) money quickly, but must devote much more time to trading than most long-term investors do.
Active traders aren't involved in trading to earn money from corporate dividends. They also usually do not purchase preferred stock, which offers benefits that are oriented toward people who invest for the long-term.
Some traders of this type hold stocks for periods of time as short as a few minutes or a fraction of a minute. To get a better idea of what it is like to be an active trader, try playing one of the day trading computer simulations. Surely it is much more stressful when real money is involved.
Compared to other stock investors, somewhat different tax rules apply to active traders. Pages D-3/4 of the Schedule D instructions provide details on these differences, as well as additional information on how to determine your definition as an investor or trader.
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