A stock market is an intriguing place that provides investors with several opportunities to make money. It comprises different types of players. Traditionally, investors are categorised as conservative, moderate, and aggressive, based on their investment capacities and risk appetites. However, as time goes by, traders start to discover their preferred trading type and analyse the kind of traders they are. If you’ve ever wondered what type of trader are you, this article is for you.
1. The Fundamental trader
Traders, who focus on company-specific events and then determine the when and which stocks to buy, are known as fundamental traders. Such traders fundamentally analyse stocks and enter into traders after viewing both short and long-term perspectives. Fundamental traders typically rely on the buy-and-hold investment strategy, as opposed to short-term trading. Their trading decisions are usually based on factors like the company’s financial health, management, company announcements, position in the marketplace etc. If you are a beginner trying to determine your trading type, you may find that you are a fundamental trader.
2. The Noise Trader
Noise traders are those who make buying and selling decisions without fundamental analysis or data specific to the company. Noise traders typically make short-term trades and attempt to profit from different economic trends. These traders tend to overreact to good as well as bad news.
3. The Sentiment Trader
You may also discover your trading type to be a sentiment trader. These traders attempt to identify various trends before participating. They prefer not to over or under-predict the market by investing in securities deemed profitable. Instead, they try to identify stocks that move with the market momentum and combine aspects of technical and fundamental analysis. Sentiment traders are further categorised as swing traders and contrarian traders. While swing traders seek to catch the momentous price movement and avoid idle times, contrarian traders attempt to use indicators of excessively positive and negative sentiments, indicating potential reversals in sentiments.
4. The Market Timer
A market timing trader is one who attempts to predict the direction in which the security will move, and hopes to profit from the movement. They typically look to technical indicators, also known as economic data, to guess the direction of the movement. Market-timers usually devise long-term strategies, and stay invested for a longer duration, dedicating enough time to make their trades successful and lucrative. So, if you find yourself religiously timing the market instead of randomly or intermittently, you may be a perpetual market-timer.
5. The Arbitrage Trader
Traders who purchase and sell assets simultaneously, to profit from price differences of financial instruments that are similar, are known as arbitrage traders. Such traders execute trades in different forms in different markets. The existence of arbitrage traders is attributed to market inefficiencies since it provides mechanisms to ensure that stock prices do not swerve substantially from its fair value for longer durations. Arbitrage traders are typically associated with hedge fund trading, which can prove quite profitable if it works.
The answer to the question, “what type of trader are you”, keeps changing as you evolve as a trader. You may begin as a noise trader and graduate to a fundamental and then arbitrage trader, with experience. Reach out to an Angel One expert to discover your trading type.