Sentiment-Oriented Technical Traders
  1. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  2. Decision-Making Methods: Informed, Uninformed, Intuitive
  3. Informed Traders: Fundamental Traders, Technical Traders
  4. Swing Traders
  5. Buy and Hold Traders
  6. Value Traders
  7. Trend Traders
  8. KISS Traders
  9. Momentum Traders
  10. Range-bound Traders - Break-out Traders - Channel Traders
  11. Options Traders
  12. Options Seller Traders
  13. Day Traders
  14. Pattern Day Traders
  15. Intra-Day Traders
  16. Intra-Day Scalp Traders
  17. Introduction to Stock Trader Types
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion

Sentiment-Oriented Technical Traders

Sentiment-oriented technical traders trade in response to predictable price patterns (“judge market sentiment”) and are similar to front runners or even effectively act as dealers or order anticipators because they try to trade before other traders. If they offer liquidity to the uninformed traders they are essentially dealers. They therefore accelerate the impact that other traders will have on the price.

Since sentiment-oriented technical traders try to trade before uninformed traders, their trading tends to make prices more erratic - high or low - which then tends to misrepresent a true market price of the instrument in question. This is especially true when they trade into a rising asset bubble.

In many cases sentiment-oriented technical traders tend to decrease market liquidity as follow-on traders then tend to view the increase or decrease in a stock price with concern. Although sentiment-oriented technical traders sometimes improve prices, the additional transaction costs they impose on their victims more than offset the price improvements that they offer to the traders with whom they trade.

Sentiment-oriented technical trading

Sentiment-oriented technical trading can be quite risky because it involves front running uninformed traders. The impacts that uninformed traders have on prices often move prices away from their fundamental values. Such movements attract value traders to the other side of the market. If the value traders trade aggressively, sentiment-oriented technical traders will then lose. Therefore sentiment-oriented technical traders must know when to close their positions. If they hold their positions too long, they will lose when prices revert to fundamental values.

Since sentiment-oriented technical traders tend to lose to value traders, sentiment-oriented technical trading will be most profitable in instruments that are not easily valued. Value traders trade less aggressively in hard-to-value instruments than in instruments that they know well.

Perhaps the best examples of hard-to-value instruments are stocks in developing industries such as the Internet. Their values are hard to estimate because they depend on uncertain technologies and on the development of unknown markets. Since these stocks tend to attract many uninformed traders, sentiment-oriented technical traders may occasionally identify profitable trading opportunities in them. Also, the stocks and bonds of companies in emerging markets may provide such opportunities for similar reasons.  -  Larry Harris, Author of Trading and Exchanges: Market Microstructure for Practitioners.

Successful sentiment-oriented technical traders

Successful sentiment-oriented technical traders may trade successfully in instruments whose values depend on difficult-to-measure fundamental factors. The three most important factors are:

  1. Expected inflation
  2. Future political uncertainty
  3. The equity risk premium

Stock, bond and precious metal values depend crucially on these factors. Since these factors are very hard to measure, value traders do not know well the fundamental values of instruments whose values depend on them. Therefore, uninformed traders may significantly affect prices in these instruments. Traders who can predict what uninformed traders will do may therefore be able to trade these instruments profitably.

Intuitive Traders

  1. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  2. Decision-Making Methods: Informed, Uninformed, Intuitive
  3. Informed Traders: Fundamental Traders, Technical Traders
  4. Swing Traders
  5. Buy and Hold Traders
  6. Value Traders
  7. Trend Traders
  8. KISS Traders
  9. Momentum Traders
  10. Range-bound Traders - Break-out Traders - Channel Traders
  11. Options Traders
  12. Options Seller Traders
  13. Day Traders
  14. Pattern Day Traders
  15. Intra-Day Traders
  16. Intra-Day Scalp Traders
  17. Introduction to Stock Trader Types
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion
RELATED TERMS
  1. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  2. Sector

    1. An area of the economy in which businesses share the same ...
  3. IRR Rule

    A measure for evaluating whether to proceed with a project or ...
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  5. Golden Cross

    A crossover involving a security's short-term moving average ...
  6. Warrant

    A derivative that confers the right, but not the obligation, ...
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  4. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  5. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  6. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center