Being a stock trader can be quite profitable.

Once you have realized that there is a great deal of backing of valid reasons in your decision to enter the arena of stock trading, it is now time to decide what type of trader type you may be so as to adapt the correct strategy in your future investment profit making! It is important to note that there are many different trading types in the marketplace. ach new person looking to make money in the market should decide for themselves which type of trader they are and perfect that strategy if it is applicable and profitable. Introduction !o learn how to trade stocks, it"s important to know the trader types that there are, and the decisions that each type of stock trader makes. #nderstanding the types of traders is the first step in helping you understand stock movement. $nowing what people do when trading, how they think and how they trade, will help a potential trader to prepare for his%her foray into the stock market &ungle by having an understanding of why and how the stock market moves and fluctuates. Stock Traders and Stock Investors' Roles in the Marketplace 'any people use the words (trading( and (investing( interchangeably when, in reality, they are two very different activities. )hile both traders and investors participate in the same marketplace, they perform two very different tasks using very different strategies. Both of these parties are necessary, however, for the market to function smoothly. Dictionary Definition of Stock Trader Trader: One that trades. Stock trader: *omeone who buys and sells stock shares. Investor: One who invests. +ooking more thoroughly at the differentiation of an investor as opposed to a stock trader when actually applied to the stock market we can see that ,A Stock Investor . stock investor is the market participant that the general public most often associates with the stock market. *tock investors can be firms or individuals who purchase stocks with the intention of holding them for an e/tended period of time, usually several months to years. !hey rely primarily on fundamental analysis for their investment decisions and fully recognize stock shares as part-ownership in the company.

'any investors believe in the buy and hold strategy, which as the name suggests, implies that investors will buy stock ownership in a corporation and hold onto those stocks for the very long term, generally measured in years. !hese investors, who purchase shares of a company for the long term with the belief that the company has strong future prospects, typically concern themselves with two things,

0alue - Investors must consider whether a company"s shares represent a good value. 1or e/ample, if two similar companies are trading at different earnings multiples, the lower one might be the better value because it suggests that the investor will need to pay less for 23 of earnings when investing in 4ompany . relative to what would be needed to gain e/posure to 23 of earnings in 4ompany B. 5 *uccess - Investors must measure the company"s future success by looking at their financial strength and evaluating their future cash flows. Both of these factors can be determined through the analysis of the company"s financial statements along with a look at industry trends that may define future growth prospects. .t a basic level, investors can measure the current value of a company relative to its future growth possibilities by looking at metrics such as the 6 7 ratio - that is, their 6% 8value9 to growth 8success9 ratio. A Stock Trader . stock trader is a market participant, either an individual or firm, who purchases shares in a company with a focus on the market itself rather than the company"s fundamentals. . stock trader usually tries to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. !he stock trader is usually a professional. 6ersons can call themselves full or part-time stock traders%investors while maintaining other professions. 'arkets that trade commodities lend themselves well to a stock trader. .fter all, very few people purchase wheat because of its fundamental quality they do so to take advantage of small price movements that occur as a result of supply and demand. . stock trader typically concerns him%herself with, 5 6rice 6atterns - . stock trader will look at past price history in an attempt to predict future price movements, which is known as technical analysis. 5 *upply and :emand - !raders keep close watch on their trades intraday to see where money is moving and why. 5 'arket motion - !raders play on the fears of investors through techniques like fading, where they will bet against the crowd after a large move takes place. 5 4lient *ervices - 'arket makers 8one of the largest types of traders9 are actually hired by their clients to provide liquidity through rapid trading.

#ltimately, it is traders that provide the liquidity for investors and always take the other end of their trades. )hether it is through market making or fading, traders are a necessary part of the marketplace. 4learly, both traders and investors are necessary in order for a market to function properly. )ithout traders, investors would have no liquidity through which to buy and sell shares. )ithout investors, traders would have no basis from which to buy and sell. 4ombined, the two groups form the financial markets as we know them today. Different Types of Traders !he type of stock trader in the market place is only limited to the number of people trading. ;aving said that, there are two very broad areas that stock traders can be classified as,3. Informed Trader: !his type of stock trader is anyone who has information about the right side of the market. <. Uninformed Trader: anyone who takes the opposite side of informed traders. 1rom these two very broad classifications there are quite a few trading types with similar traits, but bear in mind, that each individual stock trader will take on traits from other classifications as well, as no one area will be completely correct for each person or trading group. 'any trader groups also have similar names. !herefore an overlapping will occur making the stock market what it is =.. an e/citing atmosphere made up of many types of traders. Classification of Trader Types undamental Traders !hese are traders who try to predict the near term movements of the stock based on how the company is doing. 1undamental traders spend their days looking through research. It might be research about the economy, a specific sector or a company. But it could also be * 4 filings, financial results, etc. !here are many possibilities but the end goal is simple. +ook at dozens or even hundreds of companies in order to find those that look the most undervalued. !hey may try to buy strong stocks after a pullback and vice versa. )hile fundamental analysis can be a great long term approach to the market it loses its strength in the short term. !hese traders may decide it is best to combine fundamentals with one of the other strategies like breakout trading or trend trading. *uch traders usually will spend entire days trying to figure out why a company>s stock has not increased more. Is it because the company will come out with bad results or is the whole crowd missing something important? Investors are always on the lookout for the ne/t 'icrosoft. !uy and "old Traders

Buy and ;old !raders, also called +ong !erm !raders, are stock market investors who are buying stocks and holding them for a long period of time. !his category most likely constitutes the largest group of people who are buying stocks as it requires the least amount of time spent focused on the stock market. !ypically people who fall into this category purchase a stock based on their calculated criterion and hold it for a longer period of time, this could be months to several years. !his category of stock trader is one who may hold a stock during a down point in the stock market believing that once the down trend is over the stock will rise. S#in$ Traders *wing !raders use a slightly longer time horizon than day traders, watching a stock for weeks or months before trading. !hey try to follow the momentum of the stock market when buying stocks. )hen markets are, in general, moving to the upside swing traders will buy stocks that fit whatever criterion they are using to select stocks, selling when this swing in the market has topped or nearing what they have calculated to be the top. !his type of stock market trading relies on careful monitoring of fundamental and technical analysis. *wing traders often specialize in a certain business or industry so that they become e/perts in the movement within those stocks. !hey also have more time to study the company financial reports and industry forecasts. *wing traders will hold stocks a matter of a few days, weeks, or even months depending on the momentum of the stock market. .lthough swing traders don>t spend quite as much time focused on the stock markets as they are following the momentum of the market, this style of trading still requires a great deal of time spent researching and monitoring the markets. !hey also have more time to study the company financial reports and industry forecasts. *ince swing trading does not require hours of daily monitoring, it is a good strategy for the trader who wants to make money from stock market trading without turning it into a full time &ob. ven the study of reports could be done during the daily commute or lunch hour so that the swing trader stays well informed. Day Traders :ay !raders are investors who generally buy and sell the same stock in the same day. !his type of trading is not limited to &ust buying stocks, they may also buy and sell stock options, currencies, or a whole range of futures. !ypically day traders may hold a stock for a matter of seconds or minutes, additionally they may buy and sell the same stock several times during the course of a day. !hey tend to be out of the market 8sell all of their stocks9 before the trading day ends to avoid any possible after market gap downs 8a situation where a stock may open the ne/t day at a lower point than it closed the previous day9. !hey avoid the risks of long term buy and hold. :ay trading requires a significant amount of time on a daily basis. 7enerally people who day trade are doing this for a living, spending their entire day at the computer buying and selling stocks. !his type of strategy for stock market trading is only effective for day traders, who apply analysis rather than emotion to trading decisions. Intra%day Traders

!he name "intra-day trader" refers to a stock trader who opens and closes a position in a security in the same trading day. !his can be buying and selling to capitalize on a potential rise in a security"s value or shorting and covering the short to capitalize on a potential drop in value. Intraday traders capitalize on small moves in the value of a security by using (leverage( or (margin(, which basically means borrowing money. :ay traders and intra-day traders are at the top of the risk spectrum. !hey participate in rapidly changing market conditions, looking for quickly developing profit opportunities. 'ostly these traders employ technical analysis to determine when conditions are right to enter either long or short, and then to e/it 8hopefully with a profit9. )ith the elevated risk comes the potential for e/traordinary @OI 8@eturn on Investment9. Intra%day Scalp Tradin$ Intra-day scalp trading is a particularly short-term form of day trading. It is generally based on technical analysis of indicators such as moving averages, '.4:, momentum oscillators, 1ibonacci sequences, etc. !rades are often held only for minutes at a time, and sometimes even shorter than that. Channel Traders 4hannel trading is a powerful yet often overlooked form of trading that capitalizes on the tendencies of markets to trend. !he channel trader combines several forms of technical analysis to provide precise points from which to buy and sell, put stop-loss and take-profit levels, etc == refer to the definition of channel trading. &rice Action Traders $eeping things simple can also be an effective methodology when it comes to trading. !here are groups of traders known as price action traders who are a form of technical traders that rely on technical analysis but do not rely on conventional indicators to point them in the direction of a trade or not. !hese traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should take a trade. !his is seen as a (simplistic( and (minimalist( approach to trading but is not by any means easier than any other trading methodology. It requires a sound background in understanding how markets work and the core principles within a market, but the good thing about this type of methodology is it will work in virtually any market that e/ists 8stocks, foreign e/change, futures, gold, oil, etc.9. 'ption Trader .n 'ption Trader is also known as an Options !rader. It is anyone who buys and sells options in the capital market. Option !rading, or options trading, is the trading of stock options over an e/change. .s options trading is most commonly conducted through online option trading brokers, it is also commonly known as Online Options !rading or even Online Option trading.

!here are many people who confuse options trading with futures trading. 1utures and options are two distinctly different derivative instruments with their own characteristics. Options trading means that instead of trading stocks, you trade the options that are offered on these stocks. utures Traders !here are A main types of futures traders in the futures market, creating the liquid futures trading environment that we see today. Bo matter what you choose to do in futures trading, you will inevitably fall in one or more of these types. !he A types of futures traders are really classified based on the purpose of their trades rather than the actual trading strategy itself as the same futures strategy can be applied for various purposes. !he A types of futures traders in the futures trading market areC ;edgers, *peculators, .rbitrageurs and *preaders. 3%"ed$ers ;edgers do with futures contracts what futures contracts were initially designed to do when they were first developed along the rivers of 4hicago, which is to hedge against price risk. Dou are a hedger when you go short on futures contracts while owning the underlying asset or other futures contracts of the same or related underlying in order to protect your e/isting positions against price fluctuations. <%Speculators *peculators form the backbone of the futures trading market we see today. !hey provide liquidity and activity in the futures trading market through their day trading or swing trading strategies, buying and selling futures contracts outright in order to speculate on a strong directional move. !his is also the most dangerous way of trading futures as the price of the underlying asset could &ust as easily come around and put your position in a loss deep enough for a margin call. E%Ar(itra$eurs .rbitrageurs are futures traders that are in the market in order to spot price anomalies between futures contracts and their underlying assets in order to reap a risk free return. .rbitrage is another huge source of volume and liquidity in the market as it typically takes an e/tremely big fund and big trading volume in order to return a worthwhile profit in arbitrage. .rbitrage is such a competitive area right now that super computers with powerful programs to spot such opportunities are set to perform such arbitrage automatically. A%Spreaders *preaders are futures traders that specialize in trading futures contracts in combination with other futures contracts or underlying assets in order to reduce risk and to e/tend profitability. *uch comple/ futures positions are what is known as (1utures *preads( or (1utures *trategies(. !his is a very professional and specialized field that has only recently been made known to the general public and makes use of the difference in price and rate of

change in price of different offsetting futures contracts in order to create futures positions that move within certain limits and have a much higher chance of profit with a lot lower commissions. 'nline Stock Traders Online stock traders place buy%sell orders for financial securities and%or currencies with the use of a brokerage"s internet-based proprietary trading platforms. !he use of online trading increased dramatically in the mid- to late-"FGs with the introduction of affordable high-speed computers and internet connections. *tocks, bonds, options, futures and currencies can all be traded online. .nother benefit of online trading is the improvement in the speed of which transactions can be e/ecuted and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format. 'ption Seller Trader Instead of being one of the many people gambling by buying stock options these traders become the house. !hey take advantage of the fact that HGI of options e/pire worthless by selling out of the money option. Bo other traders have as high a probability of being right as they do and they take advantage of it. !heir goal is to make a consistent J-3GI a month off of their money. Trend Traders !his type of stock trader can have a longer term approach to trading. !hey will try to find a great up trending stock, buy it and ride it until the trend changes. .fter all if a stock keeps going up wouldn>t it be great to &ust buy it and let it double, triple, do what it does. Because up trending stocks go through stages of higher highs and higher lows these traders should have a loose stop and should not be worried about outside factors such as their stock being overe/tended, as long as the stock is still going up. A Ran$e%(ound Trader @ange-bound trading is a purely technical method of predicting a stock"s short-term highs and lows. @ange-bound traders are more active in a rangebound market, where they trade stocks within a defined channel. . more detailed e/planation about range-bound traders is available ; @ . 1or information on *trategies for a @ange-bound 'arket! - click here. !reak%out Traders

. Break-out !rader is a stock trader who is looking for strong stocks. ;e buys when a stock has &ust broken out and follows it up because breakouts on high volume are normally a strong buy signal, especially in bull markets. !hese traders can sometimes find stocks that move astonishing amounts in short periods of time. !his stock trader often has his%her own set of rules to help determine if a breakout trade is a false signal or a great buy. !hey may decide to add fundamental analysis or other indicators to help weed out breakouts that produce false signals. Momentum Traders 'omentum traders generally agree that attempting to determine the absolute value of a stock is pointless. !hey tend to say the absolute value of a stock is obvious, It"s the price the stock &ust traded at-that"s what your stock is worth. !he (last price theory( is both obvious and worthless. Obvious because the stock value has &ust been demonstrated and worthless because in investment terms, it gives you know idea what the stock is going to be worth in the future. 'omentum traders fundamentally rely on three types of information, Moving Averages, Market Direction and Elliot Waves. !he idea is to ride the momentum of a current stock move. !he basic idea is that a stock in motion will tend to stay in motion. )*I*S*S* Trader $I** is an acronym for the design principle "Keep it simple, Stupid!", meaning (:on"t be stupid, keep it simple!(. Other variations include (keep it short and simple( or (keep it simple and straightforward(.!he $I** principle states that simplicity should be a key goal in design, and that unnecessary comple/ity should be avoided. I particularly like this type of trading at certain times, and the stock trader that adheres to this principle must be aware that it does not mean throwing out all the technical analysis and indicators but to simply 8as it says9 K$ 6 I! *I'6+ L. !he most profitable trades, a great deal of the time, are those that are the simplest to spot. !his type of stock trader views this scenario as one of the simplest in nature, but realizes that it is the smartest type of trade because it produces the greatest profits. The &rice Trader !he price trader is the analyst who tries to figure out e/actly what a stock is worth. 6rice traders are the most common type of trader in the stock market. 6rice traders buy a stock based on a fi/ed price. 1or e/ample, they study .pple 4omputer 8..6+9 and determine that based on the company"s public information the stock is worth 23GG or 23<J or 2FM.<J a share. 6rice !raders buy the stock if it is below that value and sell the stock if it is above that value.

Because of price traders, stocks often trade up to a certain value and stop. *tocks also tend to trade between values quickly. 1or e/ample, stocks -any stocks- tend to be more volatile when their stock price is between 2AJ and 2JG as well as 2FG and 23GG. *ome stocks also tend to (trade on the fives and tens( - meaning that the stock will trade at 2J, move very quickly to 23G, and then move very quickly to 23J. !his is due in part to option strike prices which have either 2J or 23G separation in strike prices. *tocks with 2J option strike prices will often trade at the 2<.JG level as well. !his phenomena is often seen most clearly at the end of a month when option e/piration occurs. 6rice traders never arrive at the same value for a stock. 7iven the thousands, perhaps millions, of individual criteria that can affect stock value, the only way two price targets end up being the same is by agreement or cohesion among analysts. .s such, stocks tend to move quickly between common price targets. In the end, the systems by which we buy and sell stocks force us to be price traders and people tend to enter round numbers into these systems. !his creates a situation where stocks tend to trade to round numbers, 23, 2G.JG, 2G.<J and 2G.MJ. &ivot Traders 6ivot !raders basically say that the e/act value 8or price of a stock9 at any given time is unknowable. Dou cannot say that your stock is worth 23GG because there are too many variables to contend with. 6ivot traders tend to say that a stock moves between popular values for that stock based on past company performance. Based on the unknowable premise, a pivot trader tends to say a stock will trade to levels that it has traded in the past and then pivot - either turn around or (breakthrough( that support or resistance level. *o, pivot traders look at past performance as the best predictor of future performance. Intuitive Traders !raders look at charts a bit, and even more into company fundamentals, but the biggest factor that remains is a general feeling, momentum not only in the individual stock but in the company itself. !he trader may look at numbers and find specific opportunities but tends to develop a general feel for many of these companies they wish to invest in. )hile this category of investing is maybe not well recognized, many traders fit the pattern. Technical Traders !echnical traders, in general, are traders that use stock charts to trade. !his type of stock trader relies on factors such as momentum, patterns, moving averages, etc. !he basic premise is that all assets move based on offer and demand more than anything else. !hey would not even care to look at which stock or commodity they are tradingC they only require the trading data to decide if they want to buy or sell.

"i$h re+uency Traders ;igh frequency traders,fitting into the technical traders category, is a term used for traders who mostly use technical factors. Active Traders .n active trader is the type of stock trader who sometimes borders on the fanatic. !hey read everything on investing, study the stocks, and subscribe to magazines, associations, or newsletters. !heir motivation can be to flip stocks and make money fast, or it can be the satisfaction of finding a treasure missed by )all *treet pundits. )hether driven by wealth or ego, this type of investor turns investing into their hobby and even passion. !hese investors learn how to read financial statements, market predictions, economic analysis reports, and editorials. !hey learn the names of the world"s best economists, and are familiar with the +ondon and Bew Dork !imes Bewspapers. !hese investors prefer stocks that are rising and promise to be a forerunner for future outperformance. !hey have one focus, accelerating earnings, from a company which has tapped into a new product or innovation that promises to hit the market hard. !here are many approaches to picking stocks, based on a number of factors including stock price behavior, markets, and earnings growth. &assive Traders !his type of stock trader is often interested in investing their money, but they do not want to spend their weekends studying financial statements, markets, and even weather reports. !his type of investor laughs at the good luck mantras and charms used by some investors. !hey are often happy to put their money in the hands of a broker and walk away. !he passive trader creates a plan, researches stocks, invests, and then patiently waits for a return in the future. . passive investor takes a look at the company"s value, assets, debt, and financial health. !hey consider market and competition when estimating the company"s opportunity for success. !hey are not aggressive, or looking for a quick gain. .s long as their losses are not in the high-risk level, they leave their portfolio alone. !hey follow the 3GI rule when estimating acceptable loss. Once a stock falls 3GI below what they paid, it is time to sell to the bargain hunters. !ar$ain "unter Trader !hese traders circle like eagles waiting for the weak and wounded to fall, then they pick up the pieces. 'any companies owe their survival in hard times to the bargain hunter. $mart is one company that pulled through and recovered after )all *treet left it for dead. The &layer Trader

.t first glance this person may not seem to have a viable place in the market, but looks can be deceiving. !his person wants to roll their money over and trade stocks constantly - that is part of the game. !hey are only interested in research and learning as long as there is money to play with. ,e#s Traders #nlike value traders, news traders do not estimate value of an instrument from first principle and all available data. !heir ob&ect is merely to estimate how value will change in response to their news information. !hey estimate total instrument values by adding to current prices their estimates of how their news changes prices. 5 !ime constrained since position should be taken before information becomes publicly available. 5 1aster price ad&usts to trades, discouragement to further informed trading and decreases realized spread. Sentiment%oriented Technical Traders )hen technical traders trade in response to predictable price patterns 8K&udge market sentimentL9 caused by uninformed traders, they effectively act as dealers or order anticipators. If they offer liquidity to the uninformed traders they are essentially dealers. !heir trading tends to make the prices more informative. Information%oriented Technical Traders .n information-oriented technical trader is the stock trader who profits by identifying predictable price patterns that result when other traders make mistakes. !echnical trading strategies that e/ploit informed traders> mistakes are rarely consistently profitable. *trategies that worked well in the past fail when informed traders learn from their mistakes. !hey buy e/treme winners or sell e/treme losers. Market Manipulators and !luffers !his stock trader profits by disseminating misinformation through media, rumors, prices or volumes. -alue Traders !his type of stock trader seeks assistance from financial analysts, statisticians, actuaries, macro-economists, industry economists, market professionals, accountants, engineers, scientists, computer programmers, librarians, and research assistants. Ar(itra$eurs !his type of stock trader simultaneously buys undervalued and sells overvalued instruments.