Some people thrive on action and fast paced environments, some like to analyze deeply before making a decision, some like to read, others are visual. What’s for certain is that everyone is very different. The three trading styles described below are very broad, and mostly every trader fits into one of them. Deciding what your trading style is based on your personality is one of the key steps to becoming a consistent trader.
Trading is a reflection of personality.
Scalpers view the market in terms of seconds (or fractions of seconds) and minutes, rather than hours or days. These traders analyze short term price movements, and take a small profits or losses many times over the course of a trading session.
Scalping used to be the domain of Pit Traders, who’d work the spread on futures contracts. As you can imagine, speed is a significant advantage to this style of trading, and has almost exclusively become the playground for HFTs and algorithmic traders. At the retail level, scalping in the FX market is difficult due to both the spread and speed. It’s not impossible, however, and with a disciplined approach and a solid strategy it can be profitable. Scalping is VERY active, traders need to be constantly watching their screens for setups.
New traders often fall into the trap of trying to be scalpers. The strategy gives new traders exactly what they want, action. Most new traders are pretty quick to find out that scalping isn’t all it’s cracked up to be once they get hit with a big loss or two that erases all their hard-fought profits.
Swing traders typically hold trades from anywhere between a few hours to a few days. They believe price will move in a certain direction over the course over a relatively short time frame, with price hitting their predetermined take profit or stop loss. Swing trading is a reasonably active strategy, depending on the strategy it could offer 1 or 30 trade setups per week. How active a swing trader wishes to be depends entirely on their strategy.
Swing traders generally use technical analysis and look at charts for entries and exits. Reasons for entering and exiting trades are mostly based on technical patterns. This is probably the most common trading style for FX retail traders, especially those that a beginning or learning. In saying that, it doesn’t mean that is can’t be extremely profitable. Combining some aspects of fundamental analysis and technical setups can also be a great strategy.
Position traders are the FX equivalent “investors”. They are focused on the longer term, and generally use some form of macroeconomic analysis to decide on trades. These trades can take anywhere between one month to a couple of years to come to fruition. Institutional traders often fall into this category, due to both the size of the positions they hold and level of sophistication they have.
Macro hedge funds put significant resources into economic forecasting and analysis, and often take trades over the longer term based on this research. This also allows them to trade larger size, work in and out of positions over time, and exit for larger profits. The greatest trades of all time fall into this category, George Soros “breaking” the Bank of England, the long US Treasury Bond, even the “Big Short”…These can all be described as long term trades based on macroeconomic factors.
Source: IQ Option