Types of Traders

Types of Traders

There are many different types of traders in the financial markets. They trade different markets and on different time frames. Here is a list of types of traders on different time frames.

Day traders: Day traders open and close their trades inside regular market hours. Day traders avoid the risk of overnight gaps but can only profit from intraday price moves. They close their positions by the end of the trading day and go out flat. For stock day traders this means their trades are opened after 9:30 a.m. EST time and close before 4:00 p.m. EST time. For other types of day traders this generally means they open and close trades in one sitting at their trading desk.

Scalping traders: Scalpers profit by quickly buying and selling throughout the trading day targeting micro profits in seconds or mintues. Scalpers edge comes from their speed of execution and getting in and out of trades as fast as possible with a profit. They trade on the smallest time frames on Level 2 quotes are inside the bid/ask spread for market makers.

Swing traders: Swing traders try to capture short-term and medium-term moves in a chart over days or weeks. Swing traders do best in range bound markets trading the moves in price from lows to highs and markets with sustained moves in one direction for multiple days in a row.

Position traders: Position traders hold for a long time period looking for the market prices to eventually move in their favor based on their thesis about a chart or market. The average time frame position traders hold trades for is months to over a year. Position traders are not very active in trading, they tend to make a few large bets on a few of their best ideas. They tend to have some of the biggest winners of any traders.

Breakout traders: Breakout traders buy when a price makes a new high in the time period being tracked. Breakout traders favorite trade is usually a break out to a new high in price out of a long price base inside a trading range. Most chart pattern signals are simply breakout signals over previous trendlines. Break out traders generally buy high and sell higher.

Reversal traders: Reversal trading is entering a position during a trend change on a chart. Buying a reversal consists of waiting for a clear change in a current price direction where it appears to be now going in the opposition position from the previous high or low. Buying a dip in a down trend that appears to have put in a low for price and selling short after a chart rips higher in price but seems to have put in a high price is trading a reversal.

Momentum traders: Momentum traders buy charts that are going up in price and sell them after they seem to peak, they also sell short a stock that is falling fast and buy to cover when it seems to have made a low. They buy strength and sell weakness. Momentum traders use volatility for buying and selling short opportunities in brief up moves and down moves then exit as momentum fades. Their buy list is the strongest charts and their sell short list is the weakest charts.

Trend followers: Trend followers don’t predict future market direction. Trend followers use quantified trading systems with an edge to create big wins and small losses by being on the right side of a sustained long-term trend. They buy high and sell higher and also will sell short to buy back lower. They research quantified ways to stay long in bubbles and stay short in crashes by letting winners run and cutting losers short. They use reactive technical analysis not opinions, predictions, or fundamentals.

Trend traders: Trend traders attempt to trade in the direction of the current trend. In bull markets they look for long positions and in bear markets they look for short positions.

Options traders: Option traders express their trades in endless ways by using long and short call and put option contracts. They can buy or sell option premium, bet on market volatility, create hedges for their positions, and leverage their bets with defined risk. Option traders must be right about the time frame and magnitude of move to profit.

Futures traders: Futures traders have their own auction market where they can buy and sell futures contracts for delivery on a future date for commodities, stock indexes, and currencies (Some futures are also cash settled). Futures are derivatives contracts that lock in prices for delivery in the future and are used by speculators to profit from price action. Futures provide leverage and hedges for traders.

Algorithmic traders: Algorithmic traders use quantified rules based trading systems for executing entries, exits, and position sizing to create a profitable edge based on repeating patterns in markets and speed of execution.

Macro traders: Macro traders try to profit by trading based on the patterns in global economic data such as growth, unemployment, inflation, interest rate trends, trades and payment balances between nations, changes in world politics, government and central bank policies, financial relationships between nations, and large global financial systemic factors.

Forex traders: Forex traders buy and sell currencies in the global foreign exchange market. A forex trader sells one currency and buys another with each currency pair trade. They profit if the currency they bought moves up against the currency they sold. A currency pair is a price quote of the exchange rate for two different national currencies traded in the forex markets. When the order is entered for a currency pair, the first listed currency (base currency) is purchased while the second listed currency in the currency pair (quote currency) is sold.