Types of the trader in Stock market

Types of traders can be categorized in 2 ways, one way is by classifying based on the time frame of the trade. The second can be by classifying based on techniques used by the traders.

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Classification based on time:
Traders can be classified into 3 types based on the timeframe of the traders, they were:

• Intraday day traders:
  Traders who do multiple trades per day providing major brokerage costs to the stockbrokers. These types of traders buy and sell the stocks on the same day even multiple times on the same stock. They try to leverage on news, technical analysis like breakout, sudden price surge, or fall. These traders tend to take leverage from the brokers trying to get more gains from the position. Some brokers even provide 50 times leverage helping them double the money on a 2% increase in price or washout the invested money when it moves in the opposite direction. This type of trader will buy or short sell the stock based on their prediction. Traders should have a proper plan and strategy to make any kind of money to be successful. It is very rare to see traders make money by doing intraday. Many investors think it’s impossible to make money by following this way of trading but some people make a decent amount of money doing intraday trading but many traders show a fake profit for getting paid or for gaining followers on Twitter. So please don’t fall into the trap of subscribing to any intraday calls from individuals. To become an intraday trader you should be well equipped with all the concepts and at least have 3-5 years of experience before making any kind of consistent profits.

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• Swing traders:
  Swing traders hold their position ranging from 2 days to 1 month (Some even hold for 3 months). This type of trader picks the stock based on news or expecting some scenarios or changes to happen in the company. Swing traders generally tend to buy and hold the stock. Rarely do they sell and wait for the stock to fall by using the futures and option instrument. The easiest way for beginners to learn the trading is to a swing trader. Never use leverage when you are a beginner for at least a year. Swing traders use both fundamental and technical analysis to pick a stock. Swing traders tend to over hold for more time in case of losses waiting for the stock to move in their direction.
• Long term traders/Investors:
  Investors are the main players in the stock market. They tend to decide the valuation and they are the best players in the stock market. They tend to keep holding the stock ranging from 6 months to multiple years. All institutional investors and mutual funds were examples of long term traders. The wealthy individual keeps holding the stocks for multiple decades making 20-30 times the invested money. If you want to live from the dividend returns this is the way to invest. These investors invest purely on fundamental analysis and valuation. When the price is right or when valuation is in acceptable limits according to their analysis. They will buy the stock planning to hold for multiple years expecting the target of about 3-4 times the invested capital and also receiving multiple dividends.

Classification based on technique:
Traders can be classified into 2 types based on the technique used for trading.

1. Fundamental analysis/News:
   Fundamental analysis means news or reports of the performance of the company. News includes governing laws/rules, change of leadership, investment from other companies, the addition of clients/business, etc. Fundamental analysis also includes the company’s balance sheet, investment, assets, liabilities, Return on Investment, Return on assets, etc. Based on sudden changes in one of the parameters will drastically change the valuation of the company. This will be determined once per quarter based on the company’s quarterly report. News generally comes during the annual meetings where most of the big decisions tend to be made. Even one small news regarding the company and their plans can move a stock price from 10-20% per day both positively and negatively.
2. Technical analysis:
   Technical analysis is an approach that uses historical prices and patterns to predict a stock movement. This is not acceptable by many investors but more than 80-90% of the traders believe in technical analysis. Techniques like price action, breakout patterns, Indicators were widely used ways in predicting the stock price. All this topic will be covered as part of this blog.

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Stay tuned!!

Signing-off,
Chandramouli