1. Introduction to Stock Trader Types
  2. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  3. Decision-Making Methods: Informed, Uninformed, Intuitive
  4. Informed Traders: Fundamental Traders, Technical Traders
  5. Swing Traders
  6. Buy and Hold Traders
  7. Value Traders
  8. Trend Traders
  9. KISS Traders
  10. Momentum Traders
  11. Range-bound Traders - Break-out Traders - Channel Traders
  12. Options Traders
  13. Options Seller Traders
  14. Day Traders
  15. Pattern Day Traders
  16. Intra-Day Traders
  17. Intra-Day Scalp Traders
  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

We’ll group together the next three classifications of trader in our tutorial because they are all linked in a number of ways. Range-bound traders, channel traders, and breakout traders share strategies, styles, and a reliance on a trade being bound (or unbounded) by two distinct lines.

Range-bound traders

Range-bound traders are purely technical traders. They typically focus on range-bound markets and trade stocks within set channels. These traders use technical analysis to determine resistance levels, then buy stocks at a lower level of support (or the bottom of the channel) before selling them near the resistance point (at the top of the channel). (For more, see Support and Resistance Basics)

These traders aim to find stocks with clear support and resistance levels. Typically, they’ll create a channel by connecting a series of high chart points and a series of low chart points, then operating within that range.

It’s common for range-bound traders to repeat the process of buying at support and selling at resistance a number of times before the stock breaks out of the channel. When a stock does break out of the channel, it often experiences a significant movement in the direction of the breakout, and this can mean losses for the trader if they are not anticipating the shift.

Range-bound traders look for three broad trends of channeling stocks:

1. Ascending: these are stocks which bounce up and down the channel in an uptrend

2. Descending: these stocks bounce up and down the channel in a downtrend

3. Horizontal: these stocks bounce up and down support and resistance levels while maintaining a horizontal trading range.

Range-bound traders tend to maintain a few strategies:

  • Go long when a stock passes the high of the first bar

  • Go short below the low of the first bar, when a stock is bouncing down from the resistance line

  • Go long if a stock breaks out of the channel to the upside

  • Go short if a stock breaks out of the channel to the downside

  • Look for obvious points of support and resistance, and expect those to be maintained in the future

  • Range-bound movement will not last forever, but it’s possible to achieve a few trades before the stock breaks out

Traders working in this area are able to use a stock’s zigzag price motion to their advantage. They utilize technical indicators to help them time their various buys and sells, including stochastics and relative strength index. These traders often also make use of spread betting, CFD (contract for difference) trading and options trading, as well as stock trading.

Channel Traders

Channel trading can be a very profitable method, but it’s often overlooked. Channels refer to the range between support and resistance levels in which a stock price trades for a specific period of time. These traders utilize technical analysis to determine these key points, and then base their buy and sell decisions off of those analyses.

A channel is defined as the area between two parallel trend lines, and it’s created by charting the price of a stock over time. The upper trend line generated in this way links price highs or closes, while the lower links the price lows or closes. The area in between is the trading channel, and channel traders expect the stock price to remain within this space for a period of time, at which point a price breakout will occur.

Channel traders usually operate on short- or medium-term levels of trading. They often look to stocks with moderate amounts of volatility, and they watch closely for breakouts in either a bullish (upward) or bearish (downward) path.

The difficult part of channel trading is establishing the channel itself. Once that has been done, the specific areas and price points at which to trade are fairly clearly defined. These traders usually sell when price approaches the top of the channel, and then they will buy when the value gets close to the bottom.

Channel trading can be split up into a number of different subgroups. There are traders who look for horizontal or sideways channels, or those that determine their channels in a variety of unique ways. In any case, determining when to exit a position is key for any channel trader. One benefit to channel trading is that the stop and limit levels are built around previously defined trading history.

Breakout Traders

Breakout traders work somewhat differently from range-bound and channel traders. They also look for these ranges and channels, but they make their decisions based on different factors. A breakout trader will buy when a stock has just broken out of a channel. They’ll then follow the stock up and on high volume.

One key consideration for breakout traders is whether the breakout indicator they see in a stock is true or whether it suggests a false shift. They’ll usually look for increases in volatility and price levels moving above or below historical ranges. When done correctly, breakout traders can successfully limit their risk and also capture significant price moves in advance of the rest of the market.

Breakouts may occur over any time frame, although those which happen over a longer period tend to create more significant changes for a stock’s momentum and volatility.

Ways breakout traders find potential targets

Breakout traders look for stocks with low volume, often expecting these to be experiencing a “calm before the storm.” They look for stocks with clearly defined support and resistance, and those with 5-, 10-, and 20-day EMAs which have truly converged. They also utilize the ADX indicator as a means of determining whether stocks have broken out of their channels.

Breakout traders assume that stocks which are moving upward will see investors buying shares, no matter what. When the price begins to reverse, those people left holding shares are known as bag holders, and no one wants to be left holding the bag. Some bag holders who miss their chance to sell for a profit will eventually look to sell just to break even. The psychology associated with these movements helps to create price resistances, which breakout traders can then capitalize on.

Conclusion

All three of these trading strategies assume that stocks experience natural levels of price support and resistance, and they then maneuver their investment decisions in various ways and in an effort to capitalize on these trends. Becoming a trader in one of these areas requires a strong knowledge of the way that resistance levels work, and it also entails careful monitoring of the stocks in question.


Options Traders
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