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  • What Sort of Trader Are You?

    What Sort of Trader Are You

    Trading the markets profitably can be as much about finding the right sort of trading strategy to suit your personality and style as picking the right markets to trade at the right time. 

    Whilst most traders think of themselves as one of three types - technical analysts, fundamental analysts or a combination of both - there are also other factors that traders need to consider when identifying what sort of trader you are. For instance, are you looking to profit from very short-term price movements or do you plan to place longer term trades spanning a few days or more?

    We take a deeper look into these elements below:

    Day Traders 

    Day traders place multiple trades throughout the course of the trading day and seek to profit from small movements in the markets. No overnight risk is typically held, and traders may look to place as many as 10 to 20  positions in a single trading session.

    Day traders are by their very nature extremely opportunistic, looking to get the most out of all market moves, especially during times of heightened market volatility. Day traders are known, however, to ‘chase’ the markets and given the high frequency of trading, you need to have a strong sense of understanding of the markets as well as be somewhat mechanical in trading, taking losses on the chin and refraining from letting your emotions drive your trading. 

    Short Term Traders 

    Short term traders attempt to profit from quick moves in market prices over the space of a day to a week. Short-term traders are similar to day traders, but have much more patience and are willing to let positions run to give them every opportunity to reach their profit targets. 

    Similarly opportunistic, many short term traders actively seek out market volatility and trade around economic data and company earnings which they see as creating trading opportunities. 

    Swing Traders

    Swing traders look to get the most out of price swings in the markets, when prices are in a definitive trend, and also seek to spot reversals in prices.

    Swing traders are technical in nature, choosing largely to ignore the noise of breaking news or company earnings to focus specifically on price action and trends. 

    Swing traders don’t let their emotions influence their trading behaviour, and pay strict attention to pure price action to help them determine their next trades.

    Pairs Traders

    A pairs trader seeks to trade the differentiation between two similar shares and benefit from a potential deviation in prices between the two when compared to the fundamental values of each company. 

    A pairs trade essentially means that the trader goes long one share and short another. The aim is to profit from when there is a distortion or deviation in one of the pairs prices, with the trade benefitting when prices re-align themselves. 

    For example, BP and Royal Dutch Shell are two very similar companies. If BP shares fell 5% on one day due to a negative broker rating or a weak earnings report, you could look to go long BP and simultaneously short sell Royal Dutch Shell. The aim would be to profit from when BP’s shares price recovers and the two share prices realign themselves. 

    As you are both long and short two similar companies that exist in the same sector, such as BP or Royal Dutch Shell, your risk is kept relatively low as the share prices of both companies should track the general performance of the sector.

    Technical Trader 

    A technical trader or technical analyst seeks to utilise historical price trends to determine future price action. Technical traders adhere to the notion that history normally repeats itself, ignoring much of the noise in the markets that can be created from breaking news, earnings reports of boardroom instability etc.

    The technical trader is very mechanical and methodical, and utilises a range of technical indicators such as a moving average, to highlight where current prices are heading and how to trade them.

    For more information on technical analysis, please see our technical analysis for beginners section.

    Fundamental Trader 

    The fundamental trader seeks to analyse the true value of an asset, be it a share, currency or metal, highlighting potential trading opportunities when the underlying price in the market for that asset indicates if prices are overvalued or undervalued.

    Fundamental traders are typically very methodical, with a good knowledge of a particular asset and of typical factors that may affect the pricing of that asset. For example, for a company, the fundamental analyst would look at earnings reports and trading updates and also evaluate major themes that may influence how that company is likely to perform going forward. 

    Fundamental analysts pay strict attention to economic data, company earnings and typically undertake a large amount of research before entering into a trade.

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