There are many different types of traders in the world. Each one has its own unique trading strategies and styles. Some traders prefer to use technical indicators, while others rely on fundamental analysis. So which type of trader are you?
In this article, we will discuss the different types of traders and their trading strategies. We are going to go into depth about the advantages and disadvantages of each type of trader.
Finally, we will divide traders into three categories based on time frame: short-term, medium, and long-term investors.
14 Types of traders
Before we get into the details of each style, here is the quick line-up of the 14 different trader types:
- Day Trader
- Swing Trader
- Momentum Trader
- Position Trader
- Fundamental Trader
- Technical Trader
- Noise Trader
- Sentiment Trader
- Contrarian Traders
- Price Action Trader
- Algorithmic Trader
- Event-Driven Trader
- FOMO Trader
What is a scalper?
The scalper is the type of trader that seeks to take small, quick profits in very short-term time frames. They enter and exit trades multiple times throughout the day, always looking for tiny little profits that add up over time.
Scalpers are known for using large positions, so even if the price moves slightly their profits are sizeable. They are also known to trade with leverage, and scalping is one of the most common Forex trading strategies.
Scalpers generally use very tight stop losses to limit their risk. This type of trader typically uses very short-term charts such as one-minute or five-minute charts to make their decisions.
What are the advantages of scalping?
- The scalper is always in the market, so they have many opportunities to profit
- Scalpers use large positions, so even a small movement in price is enough to profit
- They don’t have to wait for long periods for a trade setup to develop
- They can make a lot of small profits that add up over time
What are the disadvantages of scalping?
- The scalper is always exposed to the risk of a sudden and sharp move against them, which can erase all their profits in a short period of time
- Scalpers need to use real-time because any delay in the quotes can put their trading at risk
- They have to be very quick on their feet and have excellent market timing skills to be successful
- They can often miss out on bigger moves if they are too busy scalping
What data and research strategy do scalpers use?
The scalper needs to have a very good understanding of technical analysis and chart patterns. They also need to be able to quickly identify opportunities and act on them without hesitation.
Due to the large position size they use, they avoid speculative positions and look for stocks with strong movements either up or down.
What tools do scalpers use to trade?
The scalper’s tools are very simple – all they need is a good charting software and a fast internet connection, and a computer that can handle all the trading. It is also important to have real-time quotes to avoid any losses due to a delay in the quotes.
What time frame do scalpers use to trade?
The scalper’s time frame is very short-term – they are only looking for quick profits that they can take home at the end of the day.
2. Day Trader
What is a day trader?
A day trader is someone who looks for quick, small profits during a single day. This involves getting into a position and exiting on the same day. Day traders may use a combination of day trading with other trading strategies, depending on the type of trader.
They usually don't hold onto their positions overnight, and they're always looking for new opportunities to trade. Day traders are also known for using leverage for their trades.
This is one of the most popular types of trading, and it can be very profitable if done correctly. It is also one of the most popular types of trading among beginners.
What are the advantages of day trading?
- The ability to take advantage of quick, small changes in the market
- Day traders also do not have to worry about how stocks trade overnight
- Can be done part-time or full-time, depending on your availability
What are the disadvantages of day trading?
- You need to have a very good understanding of the markets to be successful
- Can be very stressful, as you're always watching the markets and waiting for opportunities
- If you're not careful, it's easy to lose money day trading
- Higher broker fees due to constant in-and-out of positions
- The use of leverage is another risk and can put day traders in debt
What data and research strategy do day traders use?
The day trader needs to be very proactive in their research, as they need to constantly be aware of the markets and any changes that might occur.
Because they are able to trade so many different assets, it requires a lot of daily research to be a successful day trader.
Most day traders either take a technical analysis approach. In this case, the data they need to focus on will be real-time data, such as prices, volumes, and news. Some day traders use a mix of technical analysis and fundamental analysis.
There are even some day traders which focus only on fundamental analysis to pick their traders. They might use a bottom-up or top-down approach, or even a combination of both.
What tools do day traders use to trade?
Day traders typically use charting software to help them find opportunities in the markets. They also use trading platforms to place their orders and execute their trades, and they also avoid using delayed quotes and prefer real-time.
What time frame do day traders use to trade?
The day trader is looking for quick profits, so their time frame is usually within a single day. They rarely hold positions overnight, to avoid carrying risk into the next day.
3. Swing Trader
What is a swing trader?
Swing traders are a type of trader that looks to take advantage of short-term price swings, or “swings”. Swing traders try to profit from the up and down movements in the market. They generally don’t pay much attention to the overall direction of the market but focus more on the individual price swings.
Swing trading can be a great way to make money in the markets, but it’s not for everyone. Swing traders need to be patient and have a good understanding of technical analysis. They also need to have the discipline to stick to their trading plan and not get emotional about their trades.
What are the advantages of swing trading?
- Can be a more simple yet profitable trading strategy
- Doesn’t require as much time or attention as day trading or scalping
- Because it does not require as much time you can do it part-time
- Can take advantage of both up and down markets
What are the disadvantages of swing trading?
- Not suitable for everyone
- Requires patience and discipline
- Risk of holding positions overnight and over the weekend
- Can be risky if not done correctly
- Timing and predicting the market is very difficult to do
- Higher volatility because the profit and losses are larger than scalping and day trading
What data and research strategy do swing traders use?
The type of research and data a swing trader needs will vary depending on the type of trade setup they are looking for. Swing trading can use a combination of technical and fundamental analysis. Since the trades are held for a longer time, there is usually strong fundamental analysis research that goes on each trade.
It is used in conjunction with technical analysis. For example, if a swing trader is looking for a bullish trade setup, they will want to look for stocks that are trading below their 200-day moving average and have recently broken out of a downtrend.
On the other hand, if a swing trader is looking for a bearish trade setup, they will want to look for stocks that are trading above their 200-day moving average and have recently broken out of an uptrend.
What tools do swing traders use to trade?
The most important tool for a swing trader is good charting software because part of the research is based on technical analysis. Swing traders will also use other tools such as fundamental analysis and news notifications to help them make trading decisions. This means they might even conduct macro research or even equity research.
What time frame do swing traders use to trade?
The time frame that swinger traders will trade varies depending on the type of trade setup they are looking for. However, they usually trade anywhere between one day and one or two months.
4. Momentum Trader
What is a momentum trader?
Momentum traders are a type of trader that looks to take advantage of the momentum in the market. Momentum traders try to profit from stocks that are moving quickly in one direction.
They generally don’t pay much attention to the overall direction of the market but focus more on stocks that are making big moves. Their trading strategy is based on the old Wall Street saying - “The trend is your friend”.
What are the advantages of momentum trading?
- Can profit from big moves in the market
- Momentum traders are able to spot large trends
- Don’t have to pick the direction of the market
What are the disadvantages of momentum trading?
- Can get caught in a stock that reverses course
- May miss out on stocks that start to move slowly
- Trends can be short-lived, and this is a risk momentum traders face. As they say, “the trend is your friend until it ends or bends”
What data and research strategy do momentum traders use?
Momentum traders rely heavily on data and research to find stocks that are making big moves. They use technical analysis to identify stocks that are in a strong trend and look for patterns that suggest the momentum will continue. They also use data to monitor their positions and exit quickly if the momentum starts to fade.
What tools do momentum traders use to trade?
Momentum traders use a variety of tools to find stocks that are moving quickly. They use technical indicators like moving averages and MACD to identify stocks that are in a strong trend. They also use stock scanners to find stocks that are making big moves.
What time frame do momentum traders use to trade?
Momentum traders generally have a short-term time frame. They are looking to take advantage of the momentum in the market and exit their positions quickly.
5. Position Trader
What is a position trader?
Position traders are a type of trader that looks to hold their positions for a long period of time. Position traders generally don’t pay much attention to the short-term fluctuations in the market but focus more on the overall direction of the market.
What are the advantages of position trading?
- Can profit from long-term trends in the market
- Don’t have to constantly monitor their positions
- Less stressful than short-term trading strategies
What are the disadvantages of position trading?
- Can miss out on short-term opportunities in the market
- It may need to wait a long time for their trades to play out
- Requires a lot of fundamental research and patience
What data and research strategy do position traders use?
Position traders rely heavily on data and research to make their trading decisions. They need to have a firm understanding of the underlying trends in the market to make profitable trades.
They rely heavily on fundamental analysis to pick each trade, but they might also use technical analysis to determine the best entry point.
What tools do position traders use to trade?
Position traders need to have a good understanding of the different technical indicators. They also need to be able to use charting software to help them make their trading decisions.
What time frame do position traders use to trade?
Position traders generally hold their positions for weeks, months, or even years. They are much more focused on the long term and require a lot of patience to see their trades become profitable.
6. Fundamental Trader
What is a fundamental trader?
Fundamental traders are those who focus on the underlying economic and financial factors that drive asset prices. They seek to identify imbalances in the markets and take advantage of them through their trading. There are two main types of fundamental analysis:
Macroeconomic analysis: This looks at the overall economic conditions that can affect asset prices and everyday life. It includes factors such as inflation, interest rates, and economic growth.
Microeconomic analysis: This looks at specific companies and industries to identify trading opportunities. It includes factors such as company financials, earnings, and trends in the industry.
What are the advantages of fundamental trading?
- Can help you identify long-term trends in the markets
- Can give you an edge in predicting price movements
What are the disadvantages of fundamental trading?
- Can be time-consuming
- Can be difficult to understand all the factors that can affect asset prices
What data and research strategy do fundamental traders use?
Fundamental traders use a variety of data sources to inform their trading decisions. These can include economic indicators, company financials, and news reports.
They might also analyze third-party research on companies, the economy, and even specific sectors or industries.
What tools do fundamental traders use to trade?
Fundamental traders often use fundamental analysis to identify trading opportunities, such as price-to-earnings ratios, to make trading decisions. They may also use technical indicators, to decide the best entry points and spot trends. A brokerage account that allows you to trade a variety of assets is all you need for this type of trading.
What time frame do fundamental traders use to trade?
Fundamental traders often take a long-term view of the markets and hold their positions for months or even years. This means that are willing to research and develop high conviction trades, that they patiently wait to profit from.
7. Technical Trader
What is a technical trader?
This type of trader looks at charts and relies solely on technical analysis to make their trading decisions. They believe that the price movements of a security are a reflection of all known information about that security, including past prices and volume. Technical traders use this information to try to predict future price movements.
What are the advantages of technical trading?
- It can also take emotion out of the equation by providing a systematic way to make trading decisions
- It can be combined with other types of trading
What are the disadvantages of technical trading?
- Technical analysis is not an exact science, and it can be easy to misinterpret charts
- You need a strong trading mindset
What data and research strategy do technical traders use?
Technical trades receive their data and research from charts and stock reports. What they require are quality charting software and real-time quotes.
What tools do technical traders use to trade?
Many technical traders use special charting software to help them identify patterns. Some of the most popular technical indicators include moving averages, support and resistance levels, and Bollinger Bands.
What time frame do technical traders use to trade?
Technical traders often have a shorter time frame than other types of traders. They may hold a position for a few minutes or even just a few seconds.
8. Noise Trader
What is a noise trader?
Noise traders are individuals who trade based on their own opinion. They don't necessarily have an edge in the market, but they often think they do. This can lead to them making poor decisions and losing money.
Noise traders can be difficult to spot, but if you see someone constantly changing their mind or giving conflicting information, they may be a noise trader. It's important to be aware of these types of traders, as they can impact the market and your own trading.
What are the advantages of noise trading?
- Can help avoid FOMO
- Can be profitable if they have an edge
What are the disadvantages of noise trading?
- Ignores market fundamentals
- Can be easily influenced by personal bias
- May make trades without proper research
What data and research strategy do noise traders use?
Noise traders often rely on their own personal opinion. Their research comes from their understanding of the world and intuition.
What tools do noise traders use?
They will use a brokerage account and may trade stocks, options, futures, or other securities.
What time frame do noise traders use to trade?
They may trade on any time frame, but they are often short-term traders.
9. Sentiment Trader
What is a sentiment trader?
A Sentiment Trader is the type of trader who buys or sells based on how they feel about the market. They don’t necessarily have any solid data to back up their decisions, but they go with their gut feeling.
This type of trader is usually more emotional and can be easily swayed by outside influences. They might read a positive article about a certain stock and decide to buy it, without doing any further research.
They may also have a soft spot for a certain company and invest in it regardless of the market conditions. Either way, the sentiment trader is basing their decisions on how they feel, not on any hard data.
What are the advantages of sentiment trading?
- Gives purpose to trading decisions beyond profits
- Can be very profitable if they have a “sixth sense” for the market
What are the disadvantages of sentiment trading?
- Prone to making impulsive decisions
- They may not have any solid reasoning behind their actions
What data and research strategy do sentiment traders use?
The sentiment trader will often look for data that reinforces their point of view. They might read articles, listen to financial news, or even talk to people they know who are invested in the market. They want to hear that their gut feeling is right, and they’ll look for any information that confirms their biases.
What tools do sentiment traders use?
The sentiment trader doesn’t need any special tools beyond a basic understanding of the market. They might use charts and technical analysis, but they’re ultimately relying on their own intuition to make trading decisions.
What time frame do sentiment traders use to trade?
Can be forever if they love a company enough. But they’re also more likely to day trade or swing trade since they’re basing their decisions on emotions.
10. Contrarian Trader
What is a contrarian trader?
The contrarian trader is the type of trader who goes against the crowd. They tend to do the opposite of what everyone else is doing, and they’re often contrarian for the sake of being contrarian.
This type of trader believes that the majority is always wrong and that there’s money to be made by betting against them. They’re often very confident and have a high-risk tolerance because they’re comfortable with being in the minority.
Contrarian traders are often successful, but they can also be very risky. If you’re thinking of becoming a contrarian trader, make sure you do your research and know what you’re doing before you start placing trades.
What are the advantages of contrarian trading?
- Can be successful if they know what they’re doing
- Reduces the chance of FOMO trades
What are the disadvantages of contrarian trading?
- Goes against the trend
- Requires a lot of research and knowledge to be successful
What data and research strategy do contrarian traders use?
To be a successful contrarian trader, you need to have a strong understanding of the market and what’s happening in it. Contrarian traders need to be keeping up with the news and current events affecting the markets. Analyzing market data and trends is also important for contrarian traders.
What tools do contrarian traders use?
Contrarian traders often use technical analysis to find opportunities. They’re looking for overbought or oversold conditions and price patterns that suggest a reversal.
What time frame do contrarian traders use to trade?
Contrarian traders can trade any time frame, but they often hold their positions for longer periods of time to take advantage of larger moves.
11. Price Action Trader
What is a price action trader?
Price action traders are those who focus on analyzing and understanding price changes in the market, without relying on indicators or other forms of technical analysis. Price action trading is a form of pure speculation, based on the trader's ability to read charts and identify market trends.
This type of trading can be very profitable, but it is also very risky. Price action traders need to have a strong understanding of market dynamics and an ability to control their emotions, as they are often trading on margin.
What are the advantages of price action trading?
- Can be very profitable
- Does not rely on indicators or other forms of technical analysis
What are the disadvantages of price action trading?
- Very risky.
- They May lose money from margin trading if they don't control their emotions well
- You need a strong trading mindset
What data and research strategy do price action traders use?
Price action traders use charts to identify market trends. They also use data on prices, volume, and other factors to make decisions about when to buy and sell.
What tools do price action traders use?
Stop losses and limit orders are essential for price action traders, as they help to control risk. A brokerage account that offers real-time data and fast execution is also important.
What time frame do price action traders use to trade?
Price action traders can trade on any time frame, but most prefer to trade on shorter time frames, such as the 15-minute or 30-minute chart.
12. Algorithmic Trader
What is an algorithmic trader?
Algorithmic trading, or algo trading for short, is a type of trading that uses computer programs to automate the buying and selling process. These programs are designed to take advantage of market inefficiencies and exploit price discrepancies.
Algorithmic traders use a variety of techniques, including statistical arbitrage, index rebalancing, and market-making. Algorithmic trading has become increasingly popular in recent years, as technology has made it easier for traders to access the data and tools they need to make informed decisions.
In fact, algorithmic trading now accounts for a significant portion of all trades taking place on the world’s stock exchanges.
What are the advantages of algorithmic trading?
- Great way to take advantage of market inefficiencies
- Uses a variety of techniques to exploit price discrepancies
- Not as prone to emotion-based decision-making
- Can be scaled up or down depending on the size of the account
What are the disadvantages of algorithmic trading?
- Requires a good understanding of programming and market analysis
- Can be difficult to find the right data and tools
- Relies on the accuracy of the data and tools
- Can be expensive to get started
- Errors and bugs can be costly
What data and research strategy do algorithmic traders use?
The research that algorithmic trading requires is intense, with a focus on technical analysis and market microstructure. Some common data sources for algorithmic trading strategies include:
- Market data providers like Bloomberg, Thomson Reuters, and FactSet
- Alternative data sources like social media sentiment, satellite imagery, and weather data
- Quantitative research firms like M Science and Quandl
- Proprietary data sources from exchanges, brokerages, and dark pools
What tools do algorithmic traders use?
Algorithmic trading strategies are often built using high-level programming languages like C++ or Python. However, there are also several commercial and open-source software platforms available.
What time frame do algorithmic traders use to trade?
Algorithmic trading can be employed in various time frames, from real-time intraday trading to longer-term swing or position trading.
13. Event-Driven Trader
What is an event-driven trader?
An Event-Driven Trader is a type of trader that looks for special events to trade on. This can be anything from earnings reports to natural disasters. They try to predict how these events will affect the markets and then trade accordingly.
Often, they will use technical analysis to help them make their decisions. Event-Driven Traders often have to be very quick when trading. They need to be able to make decisions quickly and then execute their trades quickly.
This can be a difficult type of trading to do, but it can also be very rewarding. Event-Driven Traders often make a lot of money when they are right about an event. But, they can also lose a lot of money if they are wrong.
What are the advantages of event-driven trading?
- World events can have a big impact on the markets
- Can make a lot of money if you are right about an event
What are the disadvantages of event-driven trading?
- Can lose a lot of money if you are wrong about an event
- Need to be able to make decisions quickly
- It can be difficult to understand how world events will affect the markets
What data and research strategy do event-driven traders use?
The research that an event-driven trader does will be focused on world events. They need to understand how these events can affect the markets. They may learn about similar events throughout history and compare how the markets reacted.
What tools do event-driven traders use?
Event-Driven Traders need to have a good understanding of technical analysis. They also need to be able to use news sources to stay up-to-date on world events. Often, they will use charting software to help them make their decisions.
What time frame do event-driven traders use to trade?
Event-Driven Traders often trade in the short term. They need to be able to make decisions quickly and execute their trades quickly. News spreads quickly and they need to be able to take advantage of it.
14. FOMO Trader
What is a FOMO trader?
The FOMO Trader is a type of trader that is driven by fear. They are afraid of missing out on a good trade. Often, they will enter a trade without doing much research. They may see that the market is going up and they want to get in on it.
But, they don’t know why the market is going up. They may also enter a trade and then get out quickly if they see that it is going down.
What are the advantages of FOMO trading?
- Does not spend much time researching
- Can find trends quickly
- Can make money in highly crowded trades
What are the disadvantages of FOMO trading?
- May enter bad trades because they don’t do enough research
- May sell at a loss if they see a did in the market
- Easily manipulated by emotions
What data and research strategy do FOMO traders use?
The research that a FOMO Trader does will be focused on finding trends. They want to find trades that are going up. This can usually be found on social media or trading forums.
What tools do FOMO traders use?
A simple brokerage account is all that is needed for a FOMO Trader, and the ability to check the news to see what stocks or assets are trending.
What time frame do FOMO traders use to trade?
This depends on what everyone else is doing. If everyone else is trading in the short term, then the FOMO Trader will want to do the same. But, if everyone else is trading in the long term, then the FOMO Trader will want to do that as well.
Which type of trader are you?
Now that you know the different types of traders, which one are you? If you are not sure, that’s okay. You can always try out different types of trading and see which one works best for you.
The most important thing is to have a plan and do your research before entering any trade. If you know what type of trader you are, feel free to comment below and let us know.