Type-of-Trader

There are different types of traders and they can be classified in different ways.

Here you will learn the different types of classifications used.

  • Trader type based on purposes and motivations

  • Trader type based on trading style

  • Trader type based on trade duration

Trader type based on purposes and motivations

  • Greedy Traders: They trade too big and risk too much because their only goal is the easy money. They usually end up blowing up their account. This is much common, especially with new traders. 
    • New Traders: They have no idea how the markets work so their only goal should be to acquire knowledge. New Traders do well to stay students until they have done their homework. Rushing in to make money without risk management, a winning strategy, the right mindset, and a trading plan will result eventually in failure 100% of the time.
  • Arrogant Traders: Their only goal is to prove they are right and satisfy their fragile egos. Arrogant traders will lie, delete tweets and posts, never admit when they are wrong. When they are wrong they will hide it under a cloak, when they are right they will scream it from the rooftops.

 

  • Trend Traders: Their only goal is to ride a trend and make money. Trend traders will buy high and sell much higher, they will short and cover much lower. They look like genius’ and prophets in a trending market either way it trends but they look like they can’t even trade in choppy or whipsawing markets. In the long term, they do very well.

 

  • Scared Traders: Their only goal is to not lose their capital. Scared traders will immediately close losing trades and also immediately take profits. They are very stressed out in trading due to not understanding the nature of trading itself or just can not handle the uncertainty or risk. They either need to do their homework to develop their faith in or if they have done the homework trading may just not be for them. Scared traders never make money.

 

  • Prophet Traders: Their only goal is to rightly predict market movement then let everyone know they did. They always think they know the top or the bottom, they love targets and believe that charts show exactly what is going to happen next. They do not really discuss their own trading they just predict prices.

 

  • Paper Traders: They love the market and study more than anyone but never quite make the plunge into real trading. They stay in the comfy cosy world of paper (demo) trading and make it more of a hobby. They just can’t make the transition into the real markets.

 

  • Rich Traders: Their only goal is to consistently make money and grow their capital over the long term. They do not ask for tips or advice, they did their homework and they trade their method. They maintain confidence in themselves and their methods regardless of whether they are winning or losing.

 

2 Types Of Forex Traders

Let’s talk about:

  1. the reversal forex traders
  2. the breakout forex traders

Reversal Forex Traders

Reversal forex traders go against the crowd:

  • They sell when others are buying and buy when others are selling.

What is a Reversal Forex Trader?

A reversal forex trader actively searches for places where the market is likely to reverse i.e change direction. He then ‘lies in wait’ and trades when price reacts in the manner he anticipated.

The analysis can be based off of price action alone, or a combination of indicators.

 

A reversal trader can go against the trend as well as ride it.

 

How Reversal Traders Trade Against The Trend

By selling at resistance & buying on support these traders go against the trend.

See an example:

  • note the uptrend
  • reversal traders will go against the trend by selling at resistance and the price rolls over.
Reversal traders trading against the trend
Reversal traders trading against the trend

 

 

How Reversal Traders Trade With The Trend

Trends are not straight. The market ebbs and flows and creates some pullbacks before continuing in line with the main trend.

Through swing trading, reversal traders aim to enter the market at turning price levels. He will expect the pullback to end and the main trend to continue.

See the image below:

 

  • REVERSAL TRADERS TRADING WITH THE TREND
    REVERSAL TRADERS TRADING WITH THE TREND

 

  • the major downtrend is characterised by some upswings which represent retracements. These upswings are minor uptrends within the context of the main downtrend. 
  • The reversal trader will try to catch the downtrend by ‘selling the reversal of the uptrend’. This way the reversal trader goes with the trend 
  • The opposite would hold true in an uptrend

 

Breakout Forex Traders

Breakout traders seek to enter a market after price ‘breaks’ out of a trading range. This range will be within the boundaries of support and resistance.

The breakout trader will buy the market when it breaks out of resistance and sells it when it breaks out of support.

 

Breakout traders keenly watch support and resistance levels and they may enter using pending orders or buy the first candle that closes outside the range. The more cautious type will buy the retest of the broken level. 

See the image below:

breakout traders selling a breakout

breakout traders selling a breakout

 

A trader can employ both tactics depending on the situation in the market. There are no hard and fast rules that state that you should stick to one of these two trading styles.  

In fact, if you look at our free signals you will find instances where we are trading reversal and other instances where we are trading breakouts.

You just need time to find yourself as a trader and see what fits you best.

Trader Type Based on Trade Duration

There are three general types of active trading; scalping, intraday (or day trading), and swing trading.

scalping-intraday-or-swing-trading

Scalping

Scalping is typically the shortest term style of trading in the markets, as scalpers seek to lower risk exposure by lowering their time in the market. Scalping usually yields the smallest gains per successful trade of the three styles that we will discuss.

Pros:

  • Positions are typically only held for short periods of time, allowing less chance for reversals to knock out your trading position. This also means less need for patience and having to wait for a trade to close.
  • Scalpers typically take profits at 1:1 risk to reward or less, allowing their strategies to achieve a higher strike rate, rather than a high reward rate.
  • Because the position is typically held for a short period of time, there is also less knowledge of the Forex market, and trading strategies needed, as long-term analysis not as useful. Trends, pivot point, Fibonacci, and the like are fairly irrelevant.

Cons:

  • Not all brokers allow for scalping on their platforms.
  • Since good trades typically yield only 1:1 risk to reward or less, one loss can deplete the gains of several successful trades.
  • Since the pip yields are often 5 pips or less, you may have to make many trades, even dozens in one day to accomplish your financial goals.
  • As we mentioned before, scalpers are in a world of their own. Long-term analysis from your favourite fundamental resources or indicators is generally useless in scalping. This can be a blessing or a curse.
  • There is a risk of overtrading and trading costs (spreads) are high

 Intraday Trading

Intraday trading is more common among Forex traders. Intraday trading is also simply known as day trading and refers to holding a position for a day or less. It’s common for a day trader to actually make more than one trade in a day, and have the positions only hold for an hour to a few hours.

Pros:

  • The number of pips per day trade can range from 15-45 easily. And with a couple of good day trades in a 24-hour market, it can be easy to walk away with 100 pips in a day.
  • With the time an intraday trade takes, an individual can choose from a number of strategies like price action, the pivot points, or basic trend following to help them have consistency and intentionality when trading.
  • Intraday is also a fairly low-risk trading. To open a position of this size may only require a small amount of capital and a stop loss of less than 10 pips, even smaller depending on the strategy used within the trade.

Cons:

  • An intraday trade will need more time to move than a scalp trade, and there is less margin for error than in swing trading. Even with a good trading strategy reversals and whipsaws can quickly take out a stop loss.
  • Intraday traders subject themselves to more market volatility than swing traders and stay exposed (with open positions) longer than scalpers.
  • Even though some days will contain multiple trades, some days won’t offer any. A person trading an intraday strategy follows a strict set of rules, and may not always have a set up in the market.

 Swing Trading

The last major form of active trading in the Forex market is swing trading. This is really a form of trading that really takes patience. Positions are held longer, but gains are massively larger.

Pros:

  • The gains on a trade can be 100-250+ pips.
  • Signals on the daily charts are generally more meaningful.
  • Because trades are taken on daily charts, stop losses are bigger. This allows for more movement within the trade, and positions are less vulnerable to whipsaws.
  • Due to the trade being kept for a longer period of time, a trader doesn’t have to sit in front of a computer all the time or check it constantly throughout the day. Swing traders typically check the market once a day, as the new candle or bar begins, each day the market is open.

  Cons:

  • Although swing traders have the freedom to be away from their computers while their trades are in play, the market can be very unpredictable. One forgotten or unexpected news release and the market can turn and take your money with it.
  • For swing traders, there is only one new candle or bar each day, meaning there will be fewer trades made over any given time, compared to the other two trading styles. This means you have to use a profitable trading strategy and follow your rules religiously. With as little as one trade a week or less, you cannot afford to be wrong very often.

Each style of active trading has its pros and cons. Each trading style lends itself to different levels of risk and potential reward. Choosing which style suits you best depends on a number of things, including your personal skill level, commitment, and attention span.

Successful traders must know themselves well, along with their financial, time, and personal restraints, in order to choose the trading style that best suits them.

A trader may find it useful to paper trade (or demo trade) different strategies, within each different active trading style, i.e. scalping, intraday, and swing trading, to see what really fits them the best.

So what kind of trader are you?