The 7 Types Of Traders

One of the best ways to determine the different types of traders is by tracking the time frame in which they trade. Some traders constantly keep track of the market and trade using a higher frequency. While others trade only once or twice a day. 

Another way to look at this is by considering the average holding period for open positions of traders. For instance, a day trader buys and sells in a time frame of minutes and hours. A position trader holds until a trend reaches its peak, while a long-term investor is in for the buy and hold.

The various profiles of traders use different strategies to determine the most valuable opportunities in the financial market. In addition, they lean on different trading systems to make the most out of their trades.  A few traders trade on a single asset, while others buy and sell a few instruments simultaneously. Beginners or traders who avoid risk tend to buy and sell only on a single asset. On the contrary, experienced or more aggressive traders prefer to apply their investing through trading strategies.

Let’s take a look into the specifics of each different type of trader and explore their trading strategies.

 

Day Trader

Day traders are concentrated on making the most of trading opportunities without leaving positions open overnight. On the other hand, all their trades are opened and closed within one trading session. The open time of a day trader’s position is normally under an hour. These trades may stay open for a couple of hours. However, they are never stretched into the next day of trading. 

Day traders tend to prefer more profitable instruments such as forex, stocks, and futures. These are the assets that grant them the ability to get in and out of their trades. Furthermore, their range of strategies includes high-frequency trading, noise trading, range trading, and more.

Day trading is a risky endeavor. It usually relies on large amounts of leverage to increase the potential profit and capitalize even on small movements in price. Day trading requires a big understanding of a good risk management strategy and market mechanics. Additionally, it needs considerable starting capital so that the trader can place more diverse techniques and profit on the market opportunities more successfully.

Day traders keep trace of the market-moving events regularly in real-time to open short-term positions and exploit even the smallest of price movements.

 

Swing Trader

This particular trading style known as swing trading aims to captivate short-and medium-term gains over an extended period. It is one of the most used forms of active trading. Swing traders tend to seek medium-term opportunities using different forms of technical analysis. They normally hold their positions open for a time frame of two days or even up to two weeks to gain profit from a forecasted price move. 

Swing trading requires lesser effort and time dedication when compared to day trading. The reason for this is that it increases short-term profit potential by gaining the bulk of market swings. The idea is to successfully spot out where the asset’s price will potentially move next. After that, you enter a position and then acquire a portion of the profit if your market prediction materializes. 

The most successful swing traders seek to acquire just a chunk of the anticipated price move. Once that happens, they move on to the next opportunity. They rarely seek to profit from the whole market move. Instead, they would rather make smaller but less volatile returns before the market turns against their favor. 

 

Position Trader

Position traders obtain assets with the value they consider will potentially climb in the long run. As a result, their strategies do not concern with short-term price movements. Instead, their main focus is on the long-term trend and the growth potential of the asset.

Position traders follow trends. They recognize a trend, open a position, and keep hold until the time comes where the market peaks. This certain trader relies on a combination of fundamental and technical analysis tools. They monitor the factors of macroeconomics and the outstanding market trends. 

If make a comparison of position trading with day trading, it can be said that the number of trades the latter places a day often surpasses the number of trades the former makers over a few months or even a year. This shows us, that with position trading, you will be using a lower frequency when buying and selling. For instance, many position traders don’t surpass 10 trades a year. Due to this, you won’t react as soon as a market-moving event takes place, or monitor the market 24/7. 

However, this doesn’t mean you shouldn’t frequently keep track of the market, especially if you haven’t started by following a proper risk management strategy. The successful position trader recognizes the favored entry and exit points for each of his intended positions from the start. 

 

 

Intraday Trader

Intraday trading is another phrase that is used for day trading, which makes them very similar to one another.

However, there are a few small differences that we should attend to clarify the distinction. The main difference is that the style of intraday trading may be more constant and has shorter times of opening for each trade. On the other hand, intraday trading might take place in smaller time frames, including seconds or minutes, to profit on swift changes in price. Additionally, intraday traders concentrate on buying and selling instruments that are available only within a timeframe of business hours.

The phrase “intraday trading” is usually used to mention traders who seek to profit on the new highs and lows of any security throughout the day. 

Fundamental Trader

Fundamental traders assess assets by attempting to give a realistic forecast of their inherent value. To do that, they examine all types of information, with trends that include global and industry. However, they mainly emphasize the individual performance and characteristics of an asset.

In the case of stocks, for instance, technical traders focus on measuring the financial management and strength of the individual company. To do that, they lean on financial statements, press releases, historical data, and other sources of information to come up with important metrics for performance in the future. The more information that gets covered by the analyst, the more precise and informed its decision becomes. 

The main goal of fundamental analysts is to assign a value to the certain security that’s in review, compared to its current market price. Built on that, the trader can determine whether to buy or sell, or completely avoid the trade. 

The majority of fundamental traders place buy-and-hold strategies and generally open positions for the long term. The reason is that the fundamentals of a certain investment might not change for months or years. This is why fundamental traders are similar to investors more than traders who frequently buy and sell. While they still lean on market news to support their views, generally, fundamental analysis loses its strength if placed on short-term horizons. 

Many are engaged in fundamental trading. However, this process that is associated with information analysis is time-consuming and research-exhaustive. It is more fitting for those opening long-term positions than traders willing to make money from the first day.

 

Technical Trader 

Technical Trading is different from the fundamental trading strategy because its purpose is to recognize opportunities by using indicators to create trading signals on a chart. As a result, other traders tend to call technical traders “chartists,” since they spend a lot of time seeking formations that show entry and exit points. 

Technical traders are usually short-term buyers and sellers. However the tools they rely on also work on longer periods and can be useful when assessing opportunities for strategies that involve buy-and-hold.  

Technical traders are convinced that all fundamentals are considered in the current price of the instrument. Instead of measuring a security’s value, they focus on engaging in charts, trends, visualizing patterns, and indicating what the instrument is likely to do in the future.

To generalize, technical traders utilize data from short time frames to generate patterns used to forecast securities or market movement. At the same time, fundamental analysis leans on information that accumulated through the years. 

 

Price Action Trader 

While technical traders can be split into a few categories, there is one category that we should focus on. Price action trading is the most popular corner of the technical trading style. It specializes in arranging the price movement of a certain asset over a specific period. This strategy creates the basis of all other technical analysis methodologies. Furthermore, it works for all assets, including ETFs, stocks, commodities, and more. 

In short, price action traders disregard the metrics of fundamental analysis. Instead, they keep track of the market and make instinctive decisions based on the current and actual price movements. 

A majority of short-term traders lean on price action and its signals to plan their trading decisions. They examine the patterns in the up and down movements in the price of the security to try to estimate where the market will move next. By keeping track of the patterns and chart compositions and interpreting their signals, traders can plan for trend continuations, reversals, or breakouts. 

 

Conclusion

The ideal way to determine which trading strategy suits your skills and mindset as a trader is trying them out yourself. However, make certain to use a demo account first so that you do not risk your capital. Trading with various instruments through different strategies is challenging. It requires months to master with complete dedication, which is why you shouldn’t rush. 

Lastly, there are a lot of various scenarios and combinations. The best way to find the trading strategy that best suits you is by recognizing your approach and style. That way, you will find the peace of mind and determination to remain consistent with the path of your choice. Additionally, you’ll be able to manage situations even when volatility makes you question your trading decisions.