Guts, intelligence, and timing – these are some of the things that separate a good trader from a great one. However, the types of traders can also be categorized according to the time frames they use for their trading activity. There are various timeframes that help trades in developing their ideas and executing their strategies. Timing also helps these traders take several things that are outside a trader’s control into account. Some of these items include position leveraging, nuances of different currency pairs, and the effects of scheduled and unscheduled news releases in the market. In this article, we’ll describe the different types of traders according to their time frames, as well as the factors mentioned above.
The Day Trader
Day trading appears to be the most appealing type of trading variations. A day trader, as the name suggests, trades for the day. These are the market participants that will typically avoid holding anything after the session closes and will trade in a high volume fashion.
On a normal day, this short-term trader will in general aim for quick turnover rate on one or more trades, anywhere from 10 to 100 times the normal transaction size. This is done to get more profits from rather small swings. As an outcome, traders who work in proprietary shops in this fashion will tend to use shorter time-frame charts, using one, five, or fifteen-minute periods. In addition, day traders usually depend more on technical trading patterns and volatile pair to make some profits.
The Swing Trader
The swing trader takes advantage of a longer time frame and will sometimes hold positions for a couple of hours – sometimes even days or longer – in order to call a turn in the market. Unlike a day trader, the swing trader is aiming to profit from an entry into the market, hoping that the change in direction will help his or her position.
In this manner, timing is more important in a swing trader’s strategy when compared to a day trader. On the other hand, both traders share the same preference for technical over fundamental analysis. A savvy swing trader will potentially take place in a more liquid currency pair like the British pound/US dollar.
The Position Trader
This usually consumes the longest time frame. Position trading differs mainly in his or her perspective of the market. Rather than monitoring short-term market movements like the day and swing style, these traders tend to look at a longer-term plan. Position strategies cover days, weeks, months, or even years.
As a result, traders will look at technical formations but will more probably follow strictly to longer term fundamental models and opportunities. These forex portfolio managers will analyze and consider economic models, governmental decisions, and interest rates to come up with trading decisions.
The wide variety of considerations will place the position trade in any of the major currencies that are generally considered to be liquid. This would include many of the G7 currencies as well as the emerging market favorites.