While different types of forex traders vary by precise definition or label, the inherent characteristics remain the same. If you take a look at how traders differ, you’d most likely point out that what distinguishes one from another is the selected timeframe for trading. Generally, there are four types of traders: scalpers, day traders, swing traders, and position traders. And this article will explain each one’s distinction so that you can figure out for yourself which trader type you fall into.
Why is it important to know what type of trader you are?
Knowing your trader profile is similar to having a set of guiding principles; it helps you in understanding how you’ll act based on what suits your personality.
By having an idea about your psyche and what is more applicable to your circumstance, you’re going to be able to make quick but well-thought-out trading decisions, which translate to better trading results. It is also the same as having an instruction manual that will tell you what to do and what not to do based on criteria that describe you.
Four Types of Traders
As mentioned, forex traders differ by the timeframe. What that means is that some traders are comfortable taking trading positions that last for days to weeks while others operate on a minute to an hourly basis.
Other factors for determining the trader type may include the available time and capital. The available time doesn’t necessarily prescribe the timeframe for trading, but it certainly influences it — nevertheless, the timeframe has more to do with the strategy employed.
On the other hand, capital influences the use of leverage for some traders. Usually, retail traders with more capital have room for taking on positions that lasts for months because they utilize less leverage.
But that’s not to say that traders with a small account size are all operating on a shorter timeframe, again it is more about personality than anything else.
The first type of trader on the list is a scalper or a “minute timeframe trader.” The shortest timeframe you will find on most trading platforms is the 1-minute chart, and to scalpers, this is their home court.
However, other scalpers would make use of the 5-minute and 15-minute charts as well. Scalpers are mostly after quick profits, and they thrive under fast-paced action. Their strategy is dependent on the minuscule movements of currencies, which is why they’d require high leverage or a more significant capital.
Perhaps the best gauge for determining if you qualify as a scalper is if you can maintain machine-like composure when faced with a situation that requires you to act quickly. Aside from that, you must also be able to rapidly accept a losing trade, close it, and spot a new opportunity as soon as it comes.
Now, day trading is a little similar to scalping, but the difference is that day trading typically lasts…a day. The timeframe that day traders normally use may vary from an hourly chart up to a 4-hour chart, so naturally, the pip target is slightly larger than that of scalping.
Day traders are those who can keep an eye on the relevant fundamentals of a trading day, forge a technical strategy or an approach, and close a position before calling it a day.
This can be full-time wherein day trading resembles the disciplines required of a daytime job, or at manageable intervals to make room for other activities that take up the majority of a person’s 24 hours.
One measure to know if you’re fit to day trade is if you feel uncomfortable in leaving a position overnight, or if you feel stressed in trading the minute chart but find yourself yawning with the daily and weekly charts.
So, if day traders and scalpers both polish off their trades within a day, swing traders need more time to get the market on their side or to at least turn a substantial profit that makes rational sense to the risk taken. Their trading horizon extends from days to weeks.
What swing traders would generally look for is an opportunity to buy or sell on the swing highs or lows of a prevailing trend. On an uptrend, if the chart shows a recent swing low with a compelling technical setup that warrants a buy, swing traders may pull the trigger on that buy order.
So, as far as personality goes, swing traders are more comfortable waiting. A trade going negatively against them for an extended period isn’t a cause for concern to this type of trader.
You’d qualify as a swing trader if you don’t get excited in making quick profits and you place a high value on a diligently laid out analysis.
Last on the list is position trading. Among all trader types, position traders are the ones that take up the most time. This style of trading looks at a trade setup that goes beyond a few weeks or a few months, which could even last up to a year.
What matters to position traders isn’t the profit brought about by short term fluctuations, but by the larger move dictated by fundamental data.
“Where are the interest rates going?”
“Is the central bank printing more money?”
“Did the economy produce more jobs in the past three months?”
Position trading requires more patience and savviness in analyzing how recent macroeconomic data will direct the flow of currency prices. Position trading is for you if you can withstand drawdowns for months on end impassively.
You may also be a position trader if you like keeping up with the current fundamental data and making long term bets based on that information.
What do you need from a broker?
So, if you’ve identified yourself from the four types of traders, here’s what you’re going to need from your broker to make your trading optimal.
If you think you’re a scalper or a day trader, then you will need low spreads from your broker to make moving in and out of the market at a low cost.
Swing traders and position traders may not necessarily require tight spreads since they trade on higher timeframes.
With the word “fast” alone, you’d be able to tell that this is mostly applicable to scalpers and day traders. Yes, you’d need a broker who can quickly get you in and out of a trade to secure profits at a rapidly moving market.
Again, this may not apply, in every situation, to swing traders and position traders, but it helps to have a broker who can guarantee a good entry and exit price consistently.
Advanced Charting Tools
This part is beneficial to all four types of traders who rely on technical analysis as a short-term or a long-term strategy. Usually, this is available on a platform different from the MT4. Some brokers develop trading applications for their clients that integrate advanced charting tools and studies that allow a more in-depth analysis of currency prices.
So there you go. Those are all four trader types. If you’re looking for a broker to provide you with all those mentioned above, then you might want to check out what FOREX.com can offer you. Click on the button below to read our review about them.
If you have any questions, drop us a comment or send us an email. Thanks for reading!