What are Different Types of Day Traders?

Last Updated: 16 Aug 2023

You could be forgiven for believing that all-day traders are the same. There are different types of day traders. Despite day trading being a short-term intraday affair, there are different types of day traders applying different approaches and principles to trading. Here, let us look at what are the different types of traders with a focus on day traders.

Different types of day traders

What are the different types of traders in the intraday market and what do they focus on. Here is a quick take on some key categories of day traders.

1. Committed chartists: These are the intraday guys who just believe that the chart is everything. They trade short-term swings in the market purely based on technical levels. Basic ideas like supports, resistances, momentum, and breakouts are like a religion to them. For them, trading is primarily about confirmation from charts and nothing else. Most of the day traders in India belong to this category.
2. News flow traders: They are often referred to as fundamental traders. Here this term is used slightly differently. Intraday traders do not spend too much time poring over balance sheets. But they are interested in news flows that impact prices like dividends, new orders, bonus issues, quarterly results. They purely trade on the momentum created by such fundamental news flows. Interestingly, this approach appeals to a lot of day traders and to broking clients too as it is based on logic and facts. In reality, unearthing and interpreting such cues can be time-consuming and research-intensive. Also, markets may not, and normally do not behave, in a very logical way.
3. Noise Traders: This term may sound strange but they are macro traders. They don’t focus too much on company fundamentals. Instead, noise traders tend to make short-term trades to profit from various economic trends. There is a bit of noise trader in every intraday trader. For example, trading banks aggressively when rates are expected to go down or autos on the long side, are examples of noise trades. They just ignore everything other than the main trend as noise.
4. Sentiment Traders: They may look a tad archaic, but in fact, they are an extremely smart bunch of intraday traders who read the market trend better than the rest and are also ahead of the rest. A good sentiment trader will never attempt to outguess the market by finding great securities. Instead, they focus on stocks that are moving with the momentum of the market. They will never try to be great contrarians but make the best of the existing sentiment in the market as long as they feel it is alive and strong.
5. Sharpshooters: Of course, this may be a tad misleading but that is exactly what such traders do. They are high-risk traders who bet on which direction (up or down) the stock will move to profit from that movement. They are agnostic to direction, but they work more on odds of the trade and probability of success than merely on fundamentals or technicals. This section of intraday traders faces problems of sustenance in the long run as consistently getting the share market timing right is not only tough but impossible.
6. Scalpers: These are very specialized forms of intraday traders and normally this is done out of the proprietary desk of large investors with good capital support. These scalpers work on very narrow spreads and trade huge volumes. As the name suggests, these scalpers try to scalp small returns from the market intraday but make good money overall on volumes. They normally are very focused on the cost of execution.
7. Arbitrage intraday traders: They exist in two forms. There are exchange arbitrageurs, but that tribe is reducing with the increased use of technology. However, cash futures arbitrage is still rampant although it is now more of an algo driven activity. Many intraday traders trade by going long on the spot and short on futures to lock in the difference and then trade the difference.

All the intraday trading categories never try to outsmart the market. They find a small window of opportunity and focus on that alone.

What is day trading?

Day trading is when you initiate an equity market trade and also close out the equity market trade on the same day. You can either buy the stock and then close the long position by selling it or you can sell the stock first and close the short position by buying it back. The net result is that at the end of the day, your net position is zero.

Intraday traders indulge in day trading and are normally averse to overnight risk. Since their net position at the end of the day is zero, they don’t bother their Demat accounts. Any profit or loss on the intraday trade gets adjusted to the trading account. Intraday trading is a high-risk game so it has to be done with a lot of discipline concerning stop losses and profit targets.

What are the types of indicators?

Some of the most popular technical indicators in the stock market include stochastic indicators, Bollinger Bands, Ichimoku Clouds, Moving Average Convergence Divergence or MACD, Channel index indicator, Relative Strength Index or RSI, Fibonacci Retracements, Money Flow Index, Parabolic Stop and Reverse or SAR, Simple Moving Average or SMA, Exponential Moving Average or EMA, Pivot points, Dynamic Momentum Index, directional movement index, Aroon Indicator, percentage price oscillator, etc. There are many more but these are some of the key indicators that are popularly used in technical analysis.

Frequently Asked Questions

Is day trading for everyone?

Day trading is open to everyone as long as you can protect your capital and keep the discipline of stopping losses and trading profit targets while trading.

What are the risks involved in day trading?

The biggest risk is that you only have 6 hours to open and close the position. You need to identify the best time during the market, which is neither too volatile nor too flat. Also, volatility works against you as an intraday trader.

Day trading versus swing trading?

Day trading is the simple opening and closing of long or short positions on the same day.Swing trading captures trends that may last from several days to several weeks.