There are 4 types of forex traders you'll see in the market. Some traders aggressively open & close trades, while some hold on to their positions for weeks & months. Which of these trading styles are the best at making money? Which of these suits your personality?
Just like there are so many ways to pick fish, there are many ways to trade Forex. You can be really successful and profitable in many different ways. So it all depends on choosing a style of Forex trading that you're comfortable with, that suits your personality and that fits in with your work/time schedule.
There are 4 types of forex traders you'll see in the market. Let's go over their trading styles from the longest-term traders (easier) to the shortest-term traders (harder).
Some people are position traders — in other words — they'll enter a Forex position and hold it for a couple of weeks, months, or even years. They have a long-term view and do tend to trade based on looking at fundamentals; the underlying health of the economy, what's happening to interest rates & GDP. They look at the overall big trend.
George Soros is one example of a position trader.
When he enters a trade, he will target 500-1000 pips per trade or more. For him to be able to capture that amount of pips, he would have to stay in the trade for a few weeks, months, sometimes even years.
Position traders would normally look at the Daily candles, where each candlestick represents one day. They might also look at the Weekly candles to make their analysis.
You might want to consider position trading if you're in a professional field that leaves you little to no time to actively trade. With position trading, you can simply make your chart analysis once a day, at the end of each trading day.
Swing traders typically target 50-150 pips per trade. When their trade hits their 50-150 pips target, they're out of the trade.
Their trade typically lasts for less than a week, and they typically look at the Hourly chart or the 4-Hourly chart.
Swing traders take into account fundamental analysis, technical analysis, the intrinsic value of the security, trend, and pattern to identify currency pairs that possess a high probability of making large price moves. They make higher returns than a 'buy & hold' investor while having lower risk compared to the other trading styles. There's also no need for Swing traders to watch the market in real-time.
As the name implies, Day traders buy & sell within the day. A Day trader closes all his trade positions at the end of each trading day and makes sure that he/she does not have any positions open overnight.
A Day trader would enter a couple of trades a day, maybe 2 or 3 trades a day. Volume and liquidity are important, as a day trader would enter and exit trade positions at a fast rate. As such, currency pairs with small daily ranges or volume wouldn't be of any interest to a day trader.
Day traders make their chart analysis based on 15-minute candles, 1-hour candles, and sometimes even 4-hour candles. It's a good middle ground as there aren't many trades and the pace is manageable enough that you won't need to act too quickly.
People who trade on the shortest time frame are known as Scalpers.
Scalpers typically look at the 1-minute or 5-minute candles, while usually entering and exiting their trades within a few seconds or minutes, targeting multiple quick profits of about 5-10 pips per trade.
They buy and sell many times a day with the goal of making consistent & small profit percentages.
Although scalping is highly profitable in a volatile market, inexperienced traders might run into trouble with the high speed of trading in the smaller time frames. Trading at such high speeds can be mentally & psychologically challenging and doesn't leave traders much time for analysis or hesitation.
If you're the type of person who loves to sit on his chair to stare at the chart for hours a day and actively execute your trades frequently, then scalping could be the style for you.
To know which trading style you should pick, you need to understand your own personality and risk appetite better. Ask yourself these questions:
Of course, it's not a must to pick just ONE single trading style. You could employ multiple styles. For example, you could have one trading account that's just for long-term position trades, while also having another trading account for you to day trade or swing trade. It's all up to you.
What's important is that you find a time frame that fits your personality and schedule. To find a time frame you're comfortable with, just remember that a higher time frame is slower & steadier, gives you fewer trades, but gives you more time to analyze the market while not feeling rushed.
What you could do is start trading Forex on a demo account and try out trading on multiple different time frames until you find one that suits you best.
Learn a new skill set and make some extra income with Forex Trading!
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