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Methods for Making Decisions in Trading

Methods for Making Decisions in Trading

There are many different types of stock traders in the market with various combinations of methods. The classifications can be confusing. That being said, there are three vast areas that stock traders fall into informed, uninformed, and intuitive.

Informed traders

These types of operators have information on the good side of the market. They can be divided into two broad categories: the most fundamental and technical (in these is high-frequency trading).

1. Fundamental traders

Fundamental traders spend their days in research, whether it’s about the economy, a specific sector, or a company. The investigation may include topics such as the SEC, financial results, etc. There are many possibilities, but the ultimate goal is simple: look at tens or even hundreds of companies to find the most undervalued stocks.

Such traders often spend days figuring out why a company’s stock has not risen or fallen more at a given time.

2. Technical traders

These traders use stock charts to make investment decisions based on factors such as dynamics, patterns, moving averages, etc., to think about before entering a trade.

With this approach, traders may care about something other than the securities or commodities being traded. All they need is trading information to decide whether to buy or sell.

They like that the market attracts them naturally and that, in the same way, it leads them to sell.

 3. High-frequency traders

High-frequency traders are basically an extension of the category of technical traders. These traders use complex algorithms to analyse multiple markets and execute orders based on market conditions.

Uninformed Operators

Uninformed traders on the Forex market tend to trade with an over confident approach. They believe they can make a fortune in a short period of time, and this often leads to losses as they typically lack the experience and knowledge of trading principles which are essential for successful trades.

Many uninformed traders also have a tendency to jump from one currency pair to another in quick succession, hoping that some will be profitable – but this also has the potential to lead to losses.

Such traders usually rely too heavily on technical analysis charts and ignore fundamental factors, such as international events that could affect prices. It is clear that without a proper understanding of complex financial instruments such as foreign exchange, uninformed traders will struggle to succeed in the world of Forex trading.

Intuitive Traders

While this type of trading is not considered as normal as the above, many traders fall into this category. This type of trader develops a general feeling or an instinct about the dynamics not only of the actions but of the company itself in order to find specific opportunities. This is not to say that they don’t use charts or study business fundamentals to arrive at this intuitive decision. Intuitive operators could be described like this:

“I’m not technical, and I don’t really study charts. Also, I’m not a big fan of studying fundamentals based on how long I hold a position. I still understand the fundamentals of a stock and what people generally expect, but most of the time, I just go with intuition. After seeing the same 50-100 names, you understand how they operate and what moves them easily. It’s pattern recognition.”

These traits overlap, making the stock market what it is, an exciting environment for many different types of traders. For now, we will leave the uninformed and intuitive traders aside and focus mainly on the informed ones.

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