Impulse traders use market momentum to make a profit, either by exploiting volatility in response to breaking news or by performing technical analysis to identify overvalued and undervalued stocks. This type of trading requires a high level of skill and an organized trading strategy to avoid exceeding limits. Impulse trading is suitable for investors with moderate to advanced skills and can be done through open clamor trading on the floor of a stock exchange or electronically. Panic trading is a common problem for new impulse traders.
An impulse trader is a stock trader who takes advantage of market momentum to make a profit. There are two different types of momentum trading, which operate in different ways. One relies on exploiting volatility in response to breaking news, while the other involves performing technical analysis to identify overvalued and undervalued stocks. Both require a high level of skill, as well as a very organized trading strategy to avoid situations where traders have trouble exceeding their limits.
In the first sense, an impulse trader acts in response to breaking news. When major news breaks, the market typically becomes volatile in response, even if the news has no direct economic impact. People who can make extremely fast trades to exploit rises and falls in value may be well positioned to profit on the change in market fortunes. This job requires paying close attention to the news, acting quickly, and being good at predicting market movements.
The other type of momentum trader identifies stocks with apparently skewed values. These traders often trade futures contracts, arranging to take advantage of expected falls or rises in value. This type of trading allows people to profit if the underlying security increases or decreases in value; The contract may allow a trader to sell an overvalued stock at a high price when the market value falls, for example, or buy at a low price when the market value rises.
Impulse trading is suitable for investors with moderate to advanced skills. Beginners can get into trouble with the fast pace and need to be able to predict market changes effectively and efficiently. A common problem for new impulse traders is panic trading, where the trader is forced to make a bad move out of fear of a change in the market. This can result in a situation where the trader takes a loss, whereas a more experienced momentum trader would have panicked and held the stock or waited to buy.
People interested in impulse trading can participate in open clamor trading on the floor of a stock exchange, or trade electronically. The best method depends on the market, the comfort level and experience of the trader, and the tactics used. To trade on the floor, an impulse trader may require sponsorship or the ability to purchase a trading seat, depending on how the stock exchange is organized.
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