The forex market is one of the world’s biggest financial markets. Forex trading presents you with the opportunity to profit from your investors. Maybe you are a new trader, and you are struggling with the question, “What kind of trader am I?” Or perhaps you have been reading around and stumbled upon terms like ‘Day Trading‘ or ‘Event Trading,’ and you are want to learn more. Whatever the case, you are in the right place. This article is an overview of the different types of trading available to traders.
There are six different types of forex traders. Mastering one style of trading is essential, but you also need to be proficient in others. Below are the existing types of traders:
Scalping is also micro-trading. It is all about targeting small profit repeatedly—the trades of a scalper last seconds to minutes. The idea is to make many profits from small price changes. It may seem little, but the profits from multiple trades add up to significant amounts. A trader who implements the scalping strategy will place anywhere from ten to a few hundred trades in a single day. The concept is that small moves in asset prices are easier to catch than large ones.
Scalping is an advanced skill. It may appear appealing for all the adrenaline junkies but it a trading strategy for experts. I would not recommend scalping to beginners.
2. Day Trader
As the name suggests, day trading involves opening and closing positions on the same day. This strategy is for holding positions for minutes to hours. Day traders do not hold their positions overnight. The day trader closes out before the market closes. Most day traders apply leverage to amplify their returns.
Day trading is often glorified as a get-rich-quick opportunity. Unfortunately, this is not the case. Day traders suffer severe losses in the initial months. Most day traders never graduate to profit-making status. Day trading is plagued by bid-ask spreads, commissions, and other expenses. A day trader needs to earn significant profits to break even.
Both scalping and day trading can be summarized as intraday trading. Both strategies require strong discipline and an excellent sense of timing.
3. Momentum Trader
In momentum trading, the trader identifies currency pairs that are about to “Break-Out.” The idea is to capture as much momentum as the asset moves up or down the chart. The focus is on assets that are moving in high volume at a singular and predictable direction. The typical time frame relevant to momentum traits is several hours to several days.
4. Swing Trader
The art of capturing short-term trends defines swing trading—this strategy attempts to capture gains in stocks within a week (1-7 days). A swing trader uses technical analysis to review assets with short-term price momentum. A swing trader is not interested in the intrinsic value or fundamentals of the asset, but rather the price trends and patterns.
Swing trading is a type of trading where someone with a full-time job can manage to trade consistently. Since the holding period lasts several days, the intraday moves will not impact a swing trader as much as it would an intraday trader.
5. Position Trader
Position traders hold a position for weeks to months. A position trader’s goal is to determine whether the current position will continue for longer than a swing or momentum trade. Position trading is for traders who are not available to trade frequently. It does not diminish profit potential. Position traders can make significant gains.
The position trader is a long-term investor. The trader is not concerned with short-term fluctuations. The long-term horizon will smooth any turbulence in price. Position trading is the polar opposite of day trading. The difference is in the objective. In position trading, the goal is to benefit from the move in the primary trend. As for day trading, the objective is to profit from fluctuations in the trend.
6. Algorithmic Trader
The algorithmic trader relies on computer programs to open and close positions. The trader may use high-frequency trading algorithms, or defined instructions to code a program or purchase an existing software.
Algorithmic trading is suitable for tech lovers who want to involve computers in their forex careers. Given the nature of the trading programs, the algorithmic trader will have to keep an eye on the technical charts.
7. Event-Driven Trader
Event-driven traders prioritize fundamental analysis over technical charts. This trader will capitalize on spikes that result from political and economic events. These events could be GDP, Non-Farm Payroll data, employment figures, and elections.
Event-driven trading is suitable to anyone who likes to keep up with the international news, a trader who understands the impact of certain news stories on different assets.
What Type of Trader are You?
When choosing a style or strategy of trading, you need to ask yourself the following questions:
- Am I a short-term or long-term investor?
- How much time is available to me for trading?
- Do I work full-time?
- How patient am I?
No one knows you better than yourself. Use these questions to guide your decision. Different strategies come with their unique set of pros and cons. Choose wisely. For more information about trading in the forex market, check out these informative materials.