Types of Traders

The availability of online trading platforms has enabled retail and individual investors to participate actively in the Indian stock market. As of March 2024, India's total number of demat accounts has surpassed 15 crores. As more and more individuals venture into the exciting world of equities, learning the best way to trade in the stock market is imperative.

Each trader has unique goals and follows different trading techniques to increase their profits with equity trading. This blog highlights the different types of traders in India.

Types of Traders Stock Market

You can follow different trading strategies based on your interests, risk appetite, time horizon, and goals. Here is a quick overview of different types of traders:

Depending on the chosen strategy, traders can be classified into the following types:

Fundamental Trader

A fundamental trader focuses on the company fundamentals and buys and sells stocks accordingly. Their decisions are highly dependent on the buy-and-hold strategy. This is a long-term trading method that primarily relies on research. The trader is not looking for short-term profits.

Technical Trader

The historical data of a stock offers insights into future price moments. Technical traders use different trading tools, such as charts, graphs, and others, to search for potential signs of convergence or divergence. They identify the good times to buy or sell securities and base their decisions on past data. Technical traders are not interested in current market dynamics because they believe in the power of historical data.

Sentiment Trader

When you analyse the stock market, you understand that the market trends determine the stock price movements most of the time. Investor sentiment is crucial in making decisions about securities. Sentiment traders use fundamental and technical analysis to spot and participate in trends.

Often, this requires extensive research to study past trends and predict future movements. Sentiment traders generally start early in the morning to find the potential securities that may gain momentum later.

Noise Trader

Noise traders are interested in short-term profits based on local and global economic trends. They don't focus on fundamental analysis, which requires deep research. Instead, they follow the latest news and events to determine the right type of stocks to buy or sell.

Noise traders may be considered impulsive or irrational traders. However, this is one of the most common types of trading.

Contrarian Trader

The contrarian traders attempt to contradict the market sentiment. Excessive positive or negative sentiment is more likely to turn in the opposite direction. For example, if traders are found selling a particular stock, they purchase it because they believe the trend will always reverse.

Swing Trader

Swing trading focuses on short-term or medium-term gains. As the focus is not on long-term gains, technical analysis is more important than fundamental analysis in learning about price trends and general market movement. The momentous price movements bring in more profits for swing traders. They aim to make smaller gains on the same investment over a few days or weeks and avoid idle time.

Arbitrage Trader

As the prices in the equity market are volatile, the assets can have pricing differences in different markets or forms. These are called pricing errors that exist for very few seconds. Arbitrage traders conduct extensive research to profit from these pricing variations. With the increasing use of technology in the stock market, arbitrage trading is becoming more difficult because pricing errors are often rectified in split seconds.

Market Timer

Market timers always work on determining the market movement to decide on specific security to buy or sell. Technical indicators and market data are necessary to make these predictions. This is a short-term trading strategy because it is challenging to predict long-term market movement.

Momentum Trader

In the stock market, there is almost always at least one security that gains momentum. The stock can go up significantly in one direction. Momentum traders look for such stocks with sudden increases and purchase those stocks. Depending on the market trend and stock movement, momentum trading may continue for a few days or end in a few hours. This depends on how quickly the stock reverses the direction.

Scalper

A scalper is a trader who makes hundreds of trades every day to earn a small profit from each trade. Minor movements in security prices result in small variations in the bid-ask spread when the asking price is greater than the bid price. Scalpers focus on making small profits consistently instead of a few large gains. They trade constantly, almost in real-time, to generate gains from smaller profits.

Day Trader

Day traders close all their opportunities within a single session and prevent leaving any trade open overnight. They start their work during the daytime and prefer liquid assets that help them to open and close trades quickly. Different technical trading strategies are used to follow market movements in real-time. Minor price changes or notable short-term positions help them to trade profitably. This type of trading requires significant initial capital but offers short-term gains within a day.

Intraday Trader

The intraday trader is similar to a day trader and will not have open positions overnight. However, their trading frequency is more than that of a day trader because they have short open times. Intraday traders widely use technical analysis and stock indicators to focus on buying and selling securities only available during standard business hours.

Position Trader

Position traders take positions on stocks based on their growth potential and macroeconomic trends. This is a long-term strategy where traders look for securities that are highly likely to appreciate over time. They may track macroeconomic news and market trends for several weeks to hold open positions for months or years to ensure the stocks gain value.

Price Action Trader

Short-term traders focus more on technical trading than fundamental analysis. Price action traders profit from predicting the price movement of an asset over a certain period. They study the market activities and price moments of specific stocks to gain profits from short-term trades.

Algorithmic Trader

Algorithmic traders rely on technology and computer programs to execute trades at the best prices. High-frequency trading algorithms are commonly used to analyse technical charts at a rapid speed to complete trades at the most beneficial time. The time frame can be long-term or short-term based on the trading algorithm deployed.

High-Frequency Trader

High-frequency trading happens at extremely short horizons that extend for milliseconds and microseconds. These lightning-fast trades aim to capture fleeting mispricings that are corrected quickly. The ultra-short time frame allows millions of trading opportunities daily, requiring high precision and low latency trading algorithms and systems.

Commodity Trader

Commodity traders work in the derivatives market to generate profits using spot and futures contracts. They aim to gain profits from pricing volatility due to demand-supply fluctuations. In India, MCX and NCDEX are the most popular commodity exchanges. Day traders focus on high-liquidity commodities, while position traders post positions from a few days to weeks.

Event Trader

Event traders watch the market for new announcements on regulations, corporate actions, elections, and more. They profit from predictable market reactions to these one-time events. The uncertainty of the event and subsequent resolution help them make gains with carefully calculated trades. They employ contextual research, precedent analysis, and pricing models to predict possible outcomes and expected reactions based on the event.

Index Trader

Rather than focusing on the price movement of individual stocks, index traders take positions on benchmark indexes like Nifty, Bank Nifty, Nifty 50, and so on. Their profit is based on broad shifts in the market sentiment, risk appetite, and liquidity flows that drive the indexes up or down.

Generally, index traders used derivatives like options and futures on the index instead of individual stocks to have a higher leverage on the market moves.

Delivery Trader

Delivery traders buy and hold stocks for medium to long-term periods. They believe that the undervalued stock will experience price appreciation due to the fundamental financial strength of the companies. Such traders don't focus on short-term technical movements and aim to capture long-term fundamental benefits. This requires the traders to have a long-term strategy and patience to identify winners.

Conclusion

Trading in the stock market can be profitable for different types of traders. To determine the type of trader you want to be, explore your strengths, resources, and interests. Those who are skilled in research and fundamental analysis can take long-term positions. Intraday traders can get discounts on the brokerage platform to carry out a large volume of trades in one day.

Day trading is often more profitable but carries significant risks. Investors always focus on long-term trading, allowing their positions to mature over weeks, months, or sometimes years. Learning the different types of analysis to identify strong companies can deliver steady returns for any type of trader.

Want to trade effectively in the highly volatile stock market? Check out Choice to stay updated on the latest news and take profitable positions on securities of your choice.