What Kind of Trader Are You?: Trading style is a reflection of your personality. Some people move in action environments and a lot of speed, others like to analyze everything in depth before making a decision, some like to read, others prefer the visual. What is certain is that we are all very different.
The three trading styles described below are the most commonly used and almost any trader fits into one of them. Deciding which trading style is based on your personality is one of the key steps to becoming a consistent trader.
Scalpers see the market in terms of seconds (or fractions of a second) and minutes, rather than hours or days. These traders analyze short-term price movements, and make small profits or losses on many occasions throughout a trading session.
Scalping used to be used by floor traders, who worked with spreads on futures contracts. As you can imagine, speed is a significant advantage of this trading style, and has become almost exclusively the playing field for HTFs and algorithmic traders. At the level of small investors, scapling in the Forex market can seem difficult, especially at first. However, it is possible to be a successful scalper if you use a disciplined approach and a solid strategy. Scalping is VERY active, traders need to constantly monitor their screens for configurations.
New traders often try to become scalpers. Strategy gives newcomers exactly what they are looking for: action. Most novice traders quickly realize that scalping requires a lot of skill, knowledge and patience.
Swing traders usually hold trades between a few hours and a few days. They believe that the price will shift in a certain direction over a relatively short period of time, with the price reaching its pre-set take profit or stop loss levels. Swing trading is a relatively active strategy.
Depending on the strategy, it may offer between 1 and 30 (or even more) trading configurations per week. How active the swing trader wants to be depends entirely on your personal preferences.
Swing traders normally use technical analysis and search the charts for entry and exit points. The reasons for entering or closing trades are mostly based on technical patterns. It is probably the most common trading style in small Forex investors, especially for those who start trading. That said, it does not mean that professional traders are not in favor of this style of trading and the strategies associated with it. Combining some aspects of fundamental and technical analysis can be very helpful.
Position traders are the FX equivalent of «investors». They focus on the long term, and generally use some form of macroeconomic analysis to decide their trades. These trades can take from a month to a couple of years to pay off. Institutional traders often fall into this category, both because of the size of the positions they hold and the level of sophistication they maintain.
Macro risk funds employ significant resources in forecasting and analysing the economy, and often carry out long-term operations based on these investigations. This also allows them to trade larger positions, work in and out of positions over time, and exit for higher profits. The biggest trades of all time fall into this category, George Soros «breaking» the Bank of England, the long US Treasury Bonds and even the Big Short… All can be described as long-term trades based on macroeconomic factors.