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The follow note is based off Larry Harris’s book, Trading and Exchanges.
There are four types of informed traders who operate in markets. Those traders are value traders, news traders, information-oriented technical traders, and arbitrageurs.
Informed traders help prices more informative. Uninformed traders make prices less informative.
Value traders estimate the fundamental values of a particular investment. These are the traders who attempt to estimate the fundamental value of a company, and buy or short a stock based off this.
News traders estimate changes in fundamental values. They rely on value traders properly pricing an investment, and trade based off news events they believe can materially affect the price of an investment.
Information-oriented traders estimate patterns that are inconsistent with fundamental values.
Arbitrageurs estimate the differences in fundamental values. They identify investments which generally correlate. When they notice a divergence in those investments, they short one investment and long the other until the prices converge once again.
Enlightenment Investing 