<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  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

Value traders base their approach on the teachings of Ben Graham and David Dodd, who worked at Columbia Business School in the 1920s and onward. While there are different interpretations of the meaning of “value trading,” a traditional value trader aims to buy stocks at a discount to their intrinsic value. These traders measure intrinsic value by taking a discount to future cash flows; if a stock price of a company is lower than the intrinsic value by what is known as a “margin of safety,” (usually at least 30% of the intrinsic value), then the company is considered undervalued in the market and worth an investment. Most often, value stocks are companies which are in decline, but the market has overreacted by pricing them too low.

Value traders necessarily rely on information and analysis from statisticians, actuaries, macro-economists, industry professionals, accountants, and more. For this reason, not many traders become value traders, as there is a high barrier of effort required in order to be successful. Value traders have the goal of profiting off of cheap stocks, which can be very difficult to do successfully.

Those traders who go into this area typically recognize the risks and the challenges associated with it and grow comfortable living with them over the long term .Value trading is not typically an area in which traders become massively wealthy very quickly.

Fundamental analysis is key to a value trader’s decisions. The fundamentals of a company are strong, but the stock’s price is below its obvious value, the value trader considers this a likely candidate for investment. Eventually, the market will correct that mistake (or at least that’s what the value trader assumes and hopes for), and the stocks price should rise, at which point the trader can sell.

Guidelines for value trading

There are a number of different approaches to value trading, but at minimum investors will want to look for these elements in a potential stock:

Finding value trades

Value investors usually follow a three-step process in order to locate undervalued stocks.

1. They sort stocks according to P/E ratios or other metrics and focus on the lowest P/E stocks. Automatically, this eliminates a number of stocks from consideration, narrowing the pool and helping to identify potentially undervalued stocks.

2. Next, the value investor will individually value each potential candidate. Some stocks have low P/E ratios because they are poor investments, while others are undervalued.

3. Finally, the value trader will compare the calculated intrinsic value against the market price. If the difference allows for a comfortable “margin of safety,” the value trader may initiate an investment.

Of course, there are many ways in which value traders can guess wrong. Sometimes changes in technology or in competitor companies throw off considerations of a stock’s intrinsic value, for instance. Sometimes companies appear to be healthy and undervalued when in fact they are nearing collapse. For this reason, value trading is potentially risky, even for those with ample experience in the area.


With many sectors changing at a rapid pace thanks to technological advancements, the life of a value trader is becoming more difficult all the time. The traditional tools for analysis are not always accurate, and this can make the process incredibly difficult. Nonetheless, many value traders have managed to amass fortunes based on this approach.

Trend Traders
Related Articles
  1. Investing

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors.
  2. Investing

    How to Invest Your Excess Cash in Undervalued Securities

    Learn how even small investors can shoot for substantial capital gains by starting to invest their excess cash in undervalued securities.
  3. Investing

    How Value Investors’ Patience Has Been Tested

    Investors in value stocks are finding their patience tested. Does this strategy still work?
  4. Investing

    How to Identify Mispriced Stocks

    Find out how to identify mispriced stocks. Learn about intrinsic and relative valuation methods based on fundamentals, and technical analysis.
  5. Investing

    Market value versus book value

    Understanding book value and market value is helpful in determining a stock's valuation and how the market views a company's growth prospects.
  6. Investing

    3 Red Flags for Value Stocks (KMI, FCX)

    Assess the components of Warren Buffett's value investing technique, and analyze the additional financial metrics to consider when diving into today's market.
  7. Financial Advisor

    Is Texas Instruments a Good Value Play? (TXN)

    Find out whether investors and analysts believe that Texas Instruments would make a good value play at its current valuation, and learn more about its outlook.
  8. Investing

    5 must-have metrics for value investors

    In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market.
Trading Center