Recent reports have revealed that about 20% of Americans consider themselves to be stock traders to some degree. The COVID-19 pandemic increased the number of stock traders in this country since it left people with lots of time on their hands and made many of them interested in learning about buying and selling stocks.
But not everyone who trades stocks in this country has the same trading style. There are so many different types of stock traders out there that employ various stock trading techniques.
The type of stock trading that you choose to do should be based partly on the financial assets that you have. It should also depend on what your plan for profit generation is.
Here are ten of the most common types of stock traders and some information on how they approach buying and selling stocks.
Table of Contents
1. Fundamental Trader
If you’re someone who likes to spend your fair share of time researching information before making important decisions, you’ll fall right in line with fundamental traders. They’ll often research everything there is to know about a company and where it’s headed before deciding whether to buy stock in it.
Fundamental traders will typically use logic and facts when buying and selling stocks. They’re some of the most knowledgeable types of stock traders around.
2. Technical Trader
Technical traders are a little like fundamental traders in that they also do a ton of research before buying and selling stocks. But rather than trying to use logic and facts to see where a company is headed, they’ll create charts and graphs that showcase how a company has fared in the past.
If history seems to suggest that now would be a good time to buy or sell stock in a company, they’ll do it. They base almost all of their decisions on the information they’re able to gather about a company’s history.
3. Sentiment Trader
If you spend enough time researching the stock market in general, you’ll start to see certain trends emerge. For example, everyone might jump on buying and selling stocks from certain types of companies at specific times.
Those who trade stocks like this are known as sentiment traders. Just like with fundamental traders and even technical traders, they’ll do massive amounts of homework on stocks they’d like to buy or sell. But they’ll focus mostly on the trends that are going on as opposed to individual companies.
4. Noise Trader
While it’s obviously a smart idea to research stocks before buying and selling them, not all types of stock traders will do this. Noise traders, for example, are notorious for buying and selling stocks without doing much research on them at all.
These types of stock traders will simply latch onto the things they’ve heard other people say and buy and sell stocks based on this information. They’re sometimes criticized for being too impulsive when they’re playing the stock market, but sometimes, this works out well for them.
5. Contrarian Trader
When everyone else who is buying and selling stocks zigs, contrarian traders tend to zag. Why? Well, they usually feel as though this could give them a decided advantage if things don’t go the way everyone else seems to think they’re going to go.
There is a similar concept called “fade the public” that’s popular in the sports betting world. When the majority of people are all betting on one team to win, some people will bet on the opposite team and “fade” those on the other side. Contrarian traders do the same thing much to the dismay of those around them.
6. Swing Trader
Swing traders aren’t concerned about how stocks are going to do over the long term. They’re more interested in making short-term and medium-term gains when buying and selling stocks.
These types of stock traders will pay close attention to how stocks are performing and do enough research to see which stocks have the best chance of increasing in price in a short period of time. They’ll then jump all over them in an attempt to make decent-sized financial gains.
View here for more information on swing trading and the swing trading alerts you should try to get your hands on.
7. Arbitrage Trader
Believe it or not, it isn’t that uncommon for pricing errors to take place within the stock world on a regular basis. Arbitrage traders are experts when it comes to finding these errors and exposing them.
Technology has made it more difficult for arbitrage traders to track down pricing errors within the stock market. But these errors do still occur from time to time, and arbitrage traders are quick to pounce on them.
8. Momentum Trader
There are some stocks that will rapidly increase in price in a very short window of time. Momentum traders are those who will spot these price spikes and jump on them right away so that they’re able to ride the wave.
Doing this can be risky at times, especially when momentum traders end up jumping on a stock when it hits its peak. But if you catch a price spike at just the right time, it can be very profitable to be a momentum trader.
9. Position Trader
Many of the different types of stock traders on this list want to try to make as much money as they can in the short term. Not position traders.
Their goal is to hone in on macroeconomic trends and try to land on stocks that look like they’re going to steadily increase in value in the years to come. They’re way more focused on long-term financial gains than many other types of stock traders.
10. Day Trader
Remember how we said the total number of stock traders in this country increased because of the COVID-19 pandemic? This was mostly because of day traders.
Day traders are those who buy and sell stocks within business hours on a particular day before closing out all their trades at the end of it. It’s easy to get involved in day trading, but it can take a while to master it.
Which of These Types of Stock Traders Sound Like You?
If buying and selling stocks is something that appeals to you, you will need to pick the trading style that you’ll use before getting started. It’ll help you make tough decisions when it comes to trading stocks.
You’re welcome to be whichever of these types of stock traders you’d like to be. You should pick the one that suits your personality best.
Read more articles related to the stock market by browsing through the rest of our blog.