Types of Forex Traders: Choosing Your Style
Just like any other job, matching your skills and personality traits with duties on the job is essential. So what are the different styles of trading you need to know about? How do you know which style is perfect for you? Read on for all the details.
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- What are the main types of traders?
- What style suits you?
Every good trader knows how to deliver results. Being courageous, having a great gut instinct and being knowledgeable are all traits that make a great trader. What can elevate you to the next level and make you a great trader though?
Just like any other job, matching your skills and personality traits with duties on the job is essential. The same applies to trading. Knowing who you are, what you excel at, and what your weak points are as well as the time you have available to trade can make or break your career in trading.
So what are the different styles of trading you need to know about? How do you know which style is perfect for you? Read on for all the details.
Which are the Main Types of Traders?
When it comes to trading and the style you will choose this depends on one thing: timing. The amount of time a trader has available will determine quite a number of things. The time frames available will determine the strategies they choose as well as the ideas they develop and execute.
In forex, there are 4 types of traders. Let’s take a closer look at each and every one of them:
If you thrive on adrenaline and love the thrill of chasing a trade then this one is for you! Scalping is exciting, thrilling and you are guaranteed that you will never get bored. How does it work? Scalping is a strategy that entails placing trades within a relatively short period of time. Positions are held for a very short time, usually a few minutes or even seconds! The main objective of a scalper is to obtain very small amounts of pips as frequently as they can during peak trading hours.
Why Should you Become a Scalper?
This might sound very stressful at times or even unlikely to be profitable. However, rest assured that profitable opportunities are frequent. This is because in every market, even calm ones, smaller movements happen more frequently than large activity. So there are a lot of smaller movements from which a scalper can benefit. Even though the profits may be less than if you were holding for longer, given scalpers are placing more trades (sometimes up to a few hundred trades in one day), the room for profit is distinct.
Having said that, this style of trading is suited to traders who can focus for long periods at a time. Why? Scalping is a very fast and demanding strategy. You will need to be constantly focused and avoid any distractions given you have to monitor the market closely for short periods at a time.
The key to scalping is to be consistent. Scalpers are usually on the lookout for small profits over long periods of time rather than big wins all the time.
The Day Trader
Day trading is very similar to scalping given it is another short-term trading style. How does it differ? In contrast to scalping, you take one trade in one day and you close it when the day is over (unlike scalping where you open and close several trades).
Day trading is the middle ground between scalping and swing trading. Scalping can be too fast for certain people while swing trading (more on this later on) can be too slow.
Why Should you Choose Day Trading?
If you have enough time at the beginning of the day and throughout the day to monitor and analyze a trade then this is for you! If you enjoy knowing whether you have profited or lost from your trades at the end of the day then this is another reason to choose this. Day trading, however, is not right for you if you have a day job. Day trading, while slower than scalping still requires constant monitoring and you cannot be distracted. Make sure you keep an eye out on the economic events of the day so you can make decisions depending on the news.
The Swing Trader
Swing trading is a style of trading used by traders whose aim is to profit from price swings over a period of time. It requires enough patience to hold a trade for several days. How does it work? Traders identify a possible trend in the markets and then hold the trade for a minimum of two days for several weeks. Traders need to remember to place larger stop losses given trades are held for longer than a day. Swing traders need to adapt that to their money management plan. It is also important to remember that there will be many fluctuations in the price so some trades may go against you during holding times.
Why Should you Become a Swing Trader?
This style of trading is ideal for those who have a day job and cannot monitor their charts throughout the day but can focus on trading for some time every night.
Swing trading is for you if you can remain calm when trades are moving against you and you can handle large stop losses. It is also ideal for you if you want to choose quality trades over a large number of trades as you need to have very good setups in swing trading.
The Position Trader
This is a style of trading that lasts the longest, lasting from several months to several years. The aim of position trading is to profit from longer-term trends and to ignore short-term price movements.
This type of trading is usually called investing given you hold positions for a long time. When it comes to currency pairs, fundamentals tend to govern the long-term trends. While losses can be huge throughout the trade, the profits can also be quite sizeable. It is very important for investors to be knowledgeable on economic data that might affect your country and your future outlook.
Why Should you Become a Position Trader?
If you are very patient and calm and don’t mind waiting for a reward then this might be for you! It is also ideal for you if you have good insight into how your currency pairs may perform in the long run. It is also worth keeping in mind that you need to have enough capital in the first place to handle when the market goes against you since you will definitely experience a downturn throughout this time.