Types of Traders
In Forex there are basically four kinds of traders and trading options. These are:
- Position Traders
- Swing Traders
- Day Traders
The difference between these traders and their trading style lies in the duration they hold a position for.
That duration corresponds to the number of pips they want to catch. You can target a smaller amount of pips over a smaller period of time and thus make profit over a large period, or you can hold a position for extended periods of time and make a bigger profit off of one trade. This is explained further below.
It should be noted here that all trading is basically a matter of experience and intuition. Traders enter and leave positions depending on what they’ve learnt from their experience or what their gut tells them. All these trading styles are decided by the trader themselves depending on what suits them best and how they hope to make profit.
Position Traders hold positions for the longest periods of time. This time usually comprises of months or sometime even a full year or so.
A position trader’s number of trades per year then will not be too many, but off of one trade they will probably catch a difference of 500-1000 pips. As explained before, pips basically help calculate the change in the rate of currency.
So whatever the rate per pip for that particular currency is, the profit is a 1000 times that, when you are trading with a standard lot. A detailed explanation of how to calculate profits is given in the lesson on Profits
To analyze these trades, Position Traders focus on Daily Candles (D1).
Swing traders hold positions for a couple of days, usually about 5 days upto a week or so, or maybe longer.
The pips they want to be able to capture within this period will ideally be over 100. They look at the trend and decide on a value they think will be reasonable and once that difference in currency rate has been reached they will close the position.
For the proper analysis of these trades, Swing Traders look at Hourly Candles (H1 and H4).
This is arguably the most common method of trading. In this type, the trader closes all their positions before the end of the work day. This saves them the interest hassle, and they get to leave with a clear understanding of where they stand, balance wise.
In a day a difference of over 20 pips is not uncommon so they ideally hope to make that or a little more than that.
Day Traders focus on the 15 Minute Candles (M15) usually to analyze the direction the currency is taking and how long to hold a position. They hold positions for a couple of hours usually.
Scalpers get out of trades even quicker than Day Traders. In fact, they hold positions only for a couple of minutes.
They use the M1 and M2 Candles usually. This means that they are tracing the currency rate trend minute by minute.
Depending on how long one plans on holding a position, they choose their tool of analysis. Since Scalpers don’t hold a position for longer than a few minutes so they look at trends minute by minute.
From one trade a Scalper can usually capture 5 to 10 pips. That is what they aim for too.
Whichever type of trade you’re into, it works on the same principle of profit making. The next chapter will show you how.