Different Types of Traders (Plus Essential Skills)

By Indeed Editorial Team

Updated October 9, 2022 | Published May 1, 2022

Updated October 9, 2022

Published May 1, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Traders may work on their own behalf, for corporations, or for other individuals, trading stocks, bonds, or financial assets in an attempt to earn a profit. Each trader has individual objectives, and they may employ a variety of trading strategies to accomplish them. Learning the different types of traders can help you decide if this the right career for you or what kind of trader you want to be. In this article, we list 16 types of traders, discuss what stock traders do, and highlight their essential skills.

Related: In-Demand Careers in Trading and Finance

16 types of traders and what they do

Here is a list of the different types of traders you can find in the stock market:

1. Fundamental trader

A fundamental trader studies company-specific events to determine whether to acquire a certain stock and when it may be most advantageous to do so. They make rational, fact-based judgments and usually choose long-term or buy-and-hold techniques over short-term trading approaches. While this may be a successful strategy, it may require more time than other ways to complete due to its heavy reliance on research.

2. Technical trader

Technical traders analyze historical data using charts, graphs, timeframes, and indicators. They search for signals of divergence or convergence that may indicate advantageous periods to purchase or sell assets. Technical traders make judgments looking at historical occurrences rather than present happenings, as they believe history is likely to repeat itself.

Related: How to Become an Equity Trader (With Steps and Salary)

3. Noise trader

A noise trader makes buy and sell decisions on stocks without conducting any fundamental analysis of the company that issued the securities. They may seek profits through short-term transactions that track various economic movements. While some may perceive these traders as impulsive or making illogical judgments, this is a rather typical type of trader because few people make trades depending only on fundamental research.

4. Sentiment trader

A sentiment trader's objective is to recognize and profit from trends. They employ elements of fundamental and technical analysis to identify equities that track the market's motion. Sentiment trading frequently necessitates substantial research to ascertain trends, and this strategy may entail monitoring the markets early in the morning in search of new assets to sell or purchase.

5. Swing trader

A swing trader's objective is to achieve short or medium-term profits, not long-term profits. They typically employ technical analysis, but may also employ fundamental analysis to get further insight into price movements or broader market patterns. Swing traders seek to profit from significant market fluctuations and avoid periods of inactivity by earning lesser returns on the same investment over a few days or weeks.

6. Contrarian traders

Contrarian traders look for indicators of excessive positive or negative sentiments and act in opposition to what others are doing. For example, if they notice most people selling a particular stock, they may purchase these stocks and vice versa. Contrarian traders operate under the assumption that people who say the market is going up only say this because they invested all their resources in the market and have no further purchasing power to use.

7. Market timer

Market timers strive to determine which direction particular security may move within the market and attempt to profit from the movement. They typically use economic data or other technical indicators to make their predictions. Market timing is often more common with short-term trading efforts because it can be more difficult to predict the long-term movement of markets.

8. Arbitrage trader

An arbitrage trader attempts to profit from pricing differences of similar instruments in different forms or markets, or from general pricing errors by purchasing and selling assets simultaneously. Many people associate this method with hedge funds, and it may be successful at generating profits. Improvements in technology now can make it more difficult to capitalize on mispricing because companies may notice and rectify the mistakes quickly.

9. Scalper trader

A scalper makes dozens or hundreds of trades each day trying to earn a small profit from each trade, making consistent profits from small movements at the security's price. This method exploits the bid-ask spread, which is the amount that the asking price for an asset in the market exceeds the bid price. Scalpers focus on earning numerous and consistent small profits rather than one or two more profitable gains, but this requires more time and near-constant trading.

10. Momentum trader

A momentum trader searches for and purchases stocks that are moving significantly in one direction. They usually attempt to capitalize on the momentum of a sudden increase. Momentum trading can happen within a few hours or days, depending on how quickly the stock moves or the direction of the momentum changes.

11. Day trader

A day trader completes all opportunities during the daytime, opening and closing all of them within a single session and avoiding leaving any open overnight. They prefer liquid assets because these assets allow them to move in and out of trades quickly, and they often employ a range of trading strategies to complete their trades. Day traders often follow market-moving events in real-time, which allows them to profit from price fluctuations or short-term positions. While day trading typically requires significant initial capital, it may be beneficial for short-term gains completed within a day.

Related: A Guide to Risk Management Process (With Practical Examples)

12. Position trader

A position trader focuses on macroeconomic trends and the growth potential of assets. They track market trends and macroeconomic trends to identify which assets they believe are most likely to appreciate. Position traders strive for long-term gains, and some of their trades may occur over weeks, months, and years depending on when the most valuable options for their assets occur.

13. Intraday trader

An intraday trader is similar to a day trader in that they close all positions during the day, leaving none open overnight. They typically have shorter open times and complete more frequent trades than day traders. Intraday traders often use technical analysis and indicators, and they may specialize in selling and buying instruments that are only available during standard business hours.

14. Price action trader

A price action trader ignores fundamental analysis metrics and focuses on technical trading. They plot a specific asset's price movement over a certain period and make subjective decisions about buying and selling based on the price movements and general market activities. Price action trading works for all types of assets and is helpful for all other technical analysis methodologies. This trading technique is popular among those looking for short-term trades.

15. Algorithmic trader

Algorithmic traders use computer programs to place trades for them at the best prices. They may provide specific instructions for these trades or set them up using high-frequency trading algorithms. While algorithmic trading requires an excellent understanding of technical charts and technology, it may be beneficial for traders looking to complete trades during the day and during any timeframe.

16. Event-driven trader

An event-driven trader monitors world news, especially political and economic events, to use for their trade decisions. They analyze these events and use other fundamental analysis tools to inform their decisions, hoping to benefit from any potential spikes caused by significant global events. Event-driven trading may be effective for short-term and long-term gains.

What does a stock trader do?

A stock trader is an individual who buys and sells stocks professionally. They may work for themselves or for a business. Stock traders profit from price fluctuations in the stock market. Financial advisers are also stock traders, and they may work as money managers for their customers. Stock traders can operate their own businesses, work for banks, or spend several hours on the trading floor of a stock market. It's vital for stockbrokers and traders to interact and plan strategies for their day-to-day operations. Also, they make buy and sell orders, process paperwork, and trade equities using computer networks.

Related: Guide: How to Become a Stockbroker

Essential skills for traders

Here are some examples of important skills for traders to develop:

  • Adaptability skills: Adaptability refers to the ability to change methods or plans based on changing circumstances. It's essential for traders to adapt their strategies to changing market conditions.

  • Analytical thinking skills: Analytical skills support traders in evaluating information to determine what decisions they can make. This may involve analyzing the market to identify trends or reviewing previous activities.

  • Decision-making skills: Decision-making skills help traders choose which methods to use and which trades to pursue. It's important for traders to be confident in their decisions and know which trades may be most beneficial for them.

  • Numeracy skills: Numeracy skills enable traders to use mathematics to understand and solve real-world problems. These skills include basic mathematic functions and more complex practices.

  • Risk management: Risk management relates to the ability to determine which actions to take to mitigate risks from occurring. This is crucial for helping traders avoid making bad trades and experiencing financial losses.

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