4 Types of Traders You Might Belong to
There are many different kinds of traders. There are those that use fundamentals, while others choose to time the market. To which group do you think you belong? Check out below and see your trading strategy.
Arbitrage traders buy and sell assets at the same time in an effort to gain some profits from price differences of identical or similar financial instruments on different markets or different forms.
Arbitrage is possible because of market inefficiencies. It gives a mechanism to ensure that prices to not deviate substantially from fair value for long periods of time. This kind of trading is usually linked with hedge funds. If it’s done properly, it works. And when it works, it can be fairly easy to make money.
For instance, if a stock has a price in an exchange that it lower than its price in another exchange, you may buy it for less in the first exchange and then sell it for higher on the second exchange.
Although this may sound pretty simple at first, modern technology has enabled exchanges to get rid of any price inefficiencies quickly that even computerized trading system designed to monitor price fluctuations are tight-pressed to spot such inefficiencies.
Sentiment traders try to spot and participate in trends. They don’t really try to outguess or outperform the market by finding great securities. Rather, they try to find securities that are moving with the momentum of the market.
Sentiment traders mix the aspects of both fundamental and technical analysis in a move to spot and participate in market movements. There are many kinds sentiment trading approaches, which include swing traders who try to catch the momentous price movements while sidestepping idle times. Contrarian traders also fall in this category. They are those who try to use indicators of excessive positive or negative sentiment as signs of a possible reversal in sentiment.
Sentiment traders also face challenges that include trading fees, market volatility, and difficulty in accurately predicting market sentiment. Although professional traders have more experience, information, lower commissions, and better leverage, their strategies are dictated by the specific securities they are trading.
Fundamental trading requires a trader to focus on company-specific events to find which stock to buy and when to buy it.
Although trading fundamentals can be considered from both short term and long term perspectives, fundamental analysis is usually more closely linked with the buy-and-hold strategy than with short-term trading.
There are trading strategies based on split-second decisions while others are based on trends or factors that play out over the course of a day. However, the fundamentals may not change for months and even years.
Market timers attempt to guess the direction in which the security will move to profit from that movement. In general, study technical indicators or economic data to predict the direction of the movement.
There are investors and academics who don’t believe that it can be possible to accurately predict the direction of the market movements. Meanwhile, there are others who engage in short-term trading.
Looking at their track record, it’s quite easy to conclude that market timers find it difficult to gain success. Most investors usually find that they are not able to dedicate enough time to achieve a reliable level of success. You can get Wibest Broker Forex News about Wibest Top Brokers here