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4 Types of Forex Traders
The forex market is quite versatile and allows traders to trade with different styles and strategies on different charting time frames. The various approaches to forex trading are characterized by the time frames utilized, the duration of their trades, and the personality of the traders themselves. This gives rise to four categories of traders; scalpers, position traders, swing traders, and day traders.
As a new trader, you should spend time understanding these approaches. Knowing your trading style is a great way to improve your trading results because it helps you to take advantage of your strengths as an individual.
Scalpers
Forex scalping is a style in which traders profit from small price swings that occur in the forex market. Scalp trades are usually executed on lower time frames and held for short durations before being closed. The aim of scalping is to make significant returns in a short period of time. Scalpers often rely on compounding their capital over time. Hence, if you wish to profit from short-term volatility then scalping would be right for you.
To scalp successfully, traders analyze the Forex market in various time frames and come up with speculation about the likely market direction. As a result, scalpers rely on technical analysis to determine the best entry and exit points. This style of trading requires a significant level of precision and attention to detail. You need to carefully select a pair to trade and execute trades in line with your trading plan, without hesitation. Scalpers may open larger contract sizes (or lot sizes) compared to other types of traders, but still, use proper risk management to control the losses.
Day Traders
Day trading involves opening, managing, and exiting a trade within a single trading day. These trades are typically open for longer periods than scalp trades and can span multiple trading sessions on the same day. They can be left open for several hours with pips targets that are usually larger than that of scalpers. To execute a day trade, you can open a position and then close it the same day, without leaving trades open overnight. It is an active way of trading and most day traders spend more time on the charts compared to other types of traders.
To prevent yourself from over-trading, you can decide to trade during the volatile session hours that are highly liquid, with numerous trading opportunities.
Swing Traders
Swing trading is a long-term approach to trading in which traders profit from large price displacements for a longer time compared to day trading and scalping. The strategies used to execute swing traders tend to be more wholesome because swing traders take time to understand the bigger picture and predict the direction of price movement for a significant amount of time. The swing trades may be left open for days to months as traders capitalize on market trends and long-term price movement.
To succeed at swing trading, traders have to understand the factors that cause and sustain these long-term price swings. This understanding can increase the likelihood of being on the profitable side of most impulsive moves.
Technical and fundamental analyses are necessary skills that every swing trader should have. The forex market is largely controlled by the factors influencing the supply and demand for a currency, including the domestic monetary and economic policies adopted in a given country. This accounts for a significant portion of fundamental analysis that must be done before swing trades are executed. Technical analysis helps to determine the best entry and exit points to maximize the win rate and risk to reward ratio of any strategy.
Position Traders
Position trading is a trading style that involves capitalizing on forex trends for long periods. These trades are usually held for weeks to years, and position traders may take fewer trades than other types of traders. Their biases are not easily influenced by daily fluctuations in the Forex market. Position trading might be right for you if you’re able to determine the market direction for the upcoming weeks and months, and then trust your analysis enough to let it play out without being distracted by other traders’ opinions.
If you’re a new trader, then it would help if you tried the different trading styles and decided which one would suit your personality. It’s okay to be confused in the beginning or feel like you can thrive with different trading styles. Keep studying and practicing till you find the approach that works for you.
