What are the different types of forex traders?

Forex trading is hugely varied, with traders taking different stances on which tactic is best. The trick with trader styles, however, isn’t finding the optimal one; it’s finding one that suits the trader.

Finding the correct style is a matter of knowledge and experience. First, traders need to learn what trading styles are available, or they are just taking shots in the dark. Then, they need to test out whether these styles actually fit them.

For instance, someone may enjoy a high-intensity hobby, making scalping, a particularly quick trading style, a perfect fit for them in theory. However, scalping is also immensely stressful, requires good multitasking, and consistent attention. As such, it may not be as appealing, even if it initially seems like a good personality match.

In essence, traders will never know whether they enjoy using a trading style before they try it. That’s why testing is important, since traders may find their perfect strategy where they otherwise wouldn’t even consider looking.

In order to provide you with a roadmap of tactics to try out, this article will contain the most common types of forex traders.

المضاربون

Scalping is perhaps the most well-known forex trading style. Scalpers are technically day traders, but the tactic has become so prominent that it has separated itself from day trading and become its own category.

Scalping involves placing a high volume of small trades and selling them with only marginal gains. As such, scalpers take quantity over quality, often not caring about market conditions at all. The macroeconomic context tends not to matter for scalpers, since they capitalise on small, consistent movements and rely on technical analysis.

So, for scalping, it’s extremely important to get in and out of a position at the exact right pip. In other words, they need a low-latency platform and the right market conditions. Scalpers prefer low spreads, high liquidity, and low-to-moderate volatility. In other words, they mostly only trade very prominent forex pairs like majors, and perhaps some minor pairs in their peak hours.

The advantage of scalping is that it doesn’t require massive market knowledge, which is why many newer traders find it attractive. Scalpers also have a sense of immediate gratification, as they often only hold trades for only minutes or even seconds. Finally, it’s a tactic that doesn’t have massive uncertainty, with the trader remaining in control.

Naturally, skilled scalpers often thrive with the tactic. However, it’s not all sunshine and rainbows. Some brokers outright prohibit scalping, introducing a minimum time for a contract to remain open. Additionally, scalping is very straining mentally, requiring a good mental balance not to burn out.

Day traders

Forex day traders can’t really be grouped into a single category, since day trading strategies vary significantly from each other. However, they do share the same time orientation. Like the name implies, day traders don’t hold their positions for longer than a day. More precisely, they don’t leave them open overnight. Again, this leads to quick feedback regarding trading improvement and allows traders to avoid overnight fees.

Some prominent day trading strategies are:

• Momentum trading: Capitalising on trends by following the momentum when prices move strongly with high volume.
• Breakout trading: Trading when assets break through key support/resistance levels.
• Pullback trading: Entering during a dip in the trend and riding out the continuation.
• Reversal trading: Identifying overbought or oversold assets and speculating on a temporary reversal.
• Gap and go: Focusing on market openings to profit from pent-up tension in the markets.

In general, day traders employ a mix of a couple of these strategies to remain versatile and able to prosper in various market conditions. Like with scalping, day trading relies more on technical indicators rather than fundamental analysis. However, since multiple tactics revolve around reversals, some market sense is required to day trade.

Day traders’ routines are much less intense than scalpers’, leading to less fatigue. However, day traders suffer from the issue of needing to close trades before the day ends. This results in a lesser ability to profit from long-lasting trends. On the other hand, if they do leave trades open, they expose themselves to overnight risk, which is exactly what day trading is trying to avoid.

The situation above may seem inescapable. However, a little secret in the trading community is that the best traders aren’t exclusively day traders, scalpers, or position traders. The best of the best can identify when to transition a position from one style to another to maximise profits.

Swing traders

This style is more long-term oriented, and is one step away from being a buy-and-hold strategy. Typically, swing traders aim to capitalise on breakout trends and ride them out for days or weeks. So they are not looking for long-term increases, but rather targeting market anomalies.

A swing trader has a lower trading intensity and typically only places a few trades per week. This means that swing trading requires much more patience, and the extended periods they tend to hold assets create uncertainty.

Additionally, swing trading, unlike scalping and, to an extent, day trading, requires very good market sense. Swing traders are fundamental by the nature of trying to capitalise on trends in the broader market and not momentary blips. As such, while they may not spend as much time looking at a platform as quicker-paced traders would, they tend to spend a lot of time researching.

The risk with swing trading is that a bad day can wipe away multiple days of progress. Likewise, exiting too early can cut profits down significantly. Like most longer-term strategies, it requires confidence, the ability to handle uncertainty, and good market knowledge.

متداولو المناصب

Position trading is somewhat less common in forex than in other assets because forex values don’t tend to change as much. However, some traders with large disposable capital do enjoy position tactics, as it’s a fire-and-forget sort of deal.

Position traders bank on a very long period of time and a relatively gradual value increase. In forex markets, position traders are essentially betting on one economy versus another.

The issue is that these tactics pay out a very small percentage of what was invested. So unless someone invests a lot of money, even if they are effective with position trading, the gains would be negligible. Additionally, position trading suffers from all the same risks that swing trading does, by virtue of them both being long-term oriented strategies.

Algo traders

The final type of trader here is quite unique, using algorithms to execute their trading strategy. This means that they’d use pre-programmed tools like EAs to run their trading routine.

Algo traders do most of their work before they let their programs run. They need to find or create an appropriate algorithm, backtest and optimise it, and ensure the system they are running it on is healthy.

During market hours, they simply oversee whether everything is running well. This includes checking whether the system is making too many trades or missing entries, and verifying that outliers don’t break the logic they’ve created. They intervene only when necessary to rectify, restart, or terminate their bots based on behaviour.

Algo trading is almost entirely different from all other trading strategies and requires traders to be skilled at programming as well as navigating markets. However, the potential payoff is a more hands-off trading routine, and one that negates emotional fluctuations at that.

إخلاء المسؤولية:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication.