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2. Which Type of Trader Are You?

What Type of Forex Trader Are You?

In the previous lessons, we went through a variety of trading styles.

Hopefully, you can identify which one may match you the best.

If you already forgot what trading style is which, fortunately, for you, it’s time to review!

There are four main types of forex trading styles:

  1. The Scalper
  2. The Day Trader
  3. The Swing Trader
  4. The Position Trader


Scalpers hold onto for a few seconds to a few minutes at the most. Their main objective is to grab very small amounts of pips as many times as they can throughout the busiest times of the day.

Day traders usually pick a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss. These kinds of traders do not hold their trades overnight.

Swing traders are for those people that like to hold on to trades for several days to several weeks at a time. These types of traders can’t monitor their charts throughout the day so they dedicate a couple of hours analyzing the market every night to make sound trading decisions.

Position traders are those that have trades that last for several weeks, months, or even years. These traders know that fundamental themes will be the predominant factor when analyzing the markets and therefore make their trading decisions based on them.

No matter what style you choose, you have to make sure that it truly fits your personality.Always changing your trading style can lead to trouble and is a sure-fire way to blowing your account.

That said, if you try scalping and you realize after a week that it’s too fast or too draining, then be flexible enough to switch it up.

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2. Which Type of Trader Are You?

Position Trading

Position trading is the longest term trading and can have trades that last for several months to several years!

Position traders ignore short-term price movements in favor of pinpointing and profiting from longer-term trends.

It is this type of trading that most closely resembles “investing”. The crucial difference is in markets outside forex, “investing” usually means you hold positions that are long.

This kind of forex trading is reserved for super PATIENT traders and requires a good understanding of the fundamentals.

Forex Position Trader

Because position trading is held for so long, fundamental themes will be the predominant focus when analyzing the markets.

Fundamentals dictate the long term trends of currency pairs and it is important that you understand how economic data affects your countries and its future outlook.

Because of the lengthy holding time of your trades, your stop losses will be very large.

This means that your losses can end up being huge, but it also means your profits can be yuuuuge (“huge” in Trumpglish).You must make sure you are well-capitalized or you will most likely get margin called.

For an idea of how much money you should have in your trading account, check out our money management lesson.

Position trading also requires thick skin because it is almost guaranteed that your trades will go against you at one point or another.

These won’t just be little retracements either.You may experience huge swings and you must be ready and have absolute trust in your analysis in order to remain calm during these times.

Types of Position Trading

While fundamental analysis plays a much larger role for position traders, that doesn’t mean that technical analysis isn’t used.

Position traders tend to use both fundamental and technical analysis to evaluate potential trends.

Here are some trading strategies utilizing technical analysis that position traders use:

Trend Trading using Moving Averages (MA)

The 50-day moving average (MA) and 200-day moving average (MA) indicator is a significant technical indicator for position traders.

The reason for this is due to the fact these moving averages illustrate significant long-term trends.

When the 50-day MA intersects with 200-day MA, this signals the potential of a new long-term trend.

When the 50-day MA crosses below the 200-day MA, it is known as the “Death Cross“.

When the 50-day MA crosses above the 200-day MA, it is known as the “Golden Cross“.

These longer-term MAs are popular chart indicators for position traders.

Support and Resistance (S&R) Trading

Support and resistance levels can signal where the price is headed, letting position traders know whether to open or close a position.

A support level is a price level that, historically, does not fall below. These “historical” support levels can hold for years.

A resistance level is a price level that, historically, tends not to be able to break. These “historical” resistance levels can also hold for years.

If position traders expect a long term resistance hold, they can close out their positions before unrealized profits stars melting away.

They may also enter long positions at historical support levels if they expect a long term trend to hold and continue upward at this point.

This strategy requires that traders to analyze chart patterns. When analyzing the chart, position traders consider three factors when trying to identify support and resistance levels.

  1. The historic price is the most reliable source when identifying support and resistance.  During periods of significant up or down in a market, recurring support and resistance levels are easy to spot.
  2. Previous support and resistance levels can indicate future levels. It is not unusual for a resistance level to become a future support level once it has been broken.
  3. Technical indicators like moving averages and Fibonacci retracement provide dynamic support and resistance levels that move as the price moves.

Breakout Trading

Trading breakouts can be useful for position traders as they can signal the start of a new trend.

Breakout traders using this technique are attempting to open a position in the early stages of a trend.

breakout is where the price moves outside defined support or resistance levels (preferably confirmed with increased volume).

The idea behind trading breakouts is to open a long position after the price breaks above resistance or open a short position when the price breaks below support.

To successfully trade breakouts, you will need to be confident in identifying periods of support and resistance.

Pullback Trading

A pullback is a short dip or slight reversal in the prevailing trend.

This strategy is used when there is a brief market dip in a longer-term trend.

Pullback traders aim to capitalize on these pauses in the market. 

The idea behind the pullback strategy is this:

  • For long trades, to buy low and sell high before a market briefly dips, and then to buy again at the new low.
  • For short trades, to sell high and buy low before a market briefly rallies, and then to sell again at the new high.

If executed successfully, a trader can not only profit from a long-term trend but avoid possible market losses by:

  1. Selling high and buying the dips (for long trades).
  2. Buying low and selling the rips (for short trades).

To help identify potential pullbacks, you can use retracement indicators, like the Fibonacci retracement.

You might be a position trader if:

  • You are an independent thinker. You have to be able to ignore popular opinion and make your own educated guesses as to where the market is going.
  • You have a great understanding of fundamentals and have good foresight into how they affect your currency pair in the long run.
  • You have thick skin and can weather any retracements you face.
  • You have enough capital to withstand several hundred pips if the market goes against you
  • You don’t mind waiting for your grand reward. Long term forex trading can net you several hundred to several thousands of pips. If you get excited being up 50 pips and already want to exit your trade, consider moving to a shorter-term trading style.
  • You are extremely patient and calm.

You might NOT be a position trader if:

  • You easily get swayed by popular opinions on the markets.
  • You don’t have a good understanding of how fundamentals affect the markets in the long run.
  • You aren’t patient. Even if you are somewhat patient, this still might not be the trading style for you. You have to be the ultimate zen master when it comes to being this kind of patient!
  • You don’t have enough starting capital.
  • You don’t like it when the market goes against you.
  • You like seeing your results fast. You may not mind waiting a few days, but several months or even years is just too long for you to wait.
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2. Which Type of Trader Are You?

Swing Trading

Swing trading refers to the medium-term trading style that is used by forex traders who try to profit from price swings.

It is trading style requires patience to hold your trades for several days at a time. Swing trading stands between two other popular trading styles: day trading and position trading.

Swing traders identify a possible trend and then hold the trade(s) for a period of time, from a minimum of two days to several weeks.

It is ideal for those who can’t monitor their charts throughout the day but can dedicate a couple of hours analyzing the market every night.

Swing trading is best suited for those who have full-time jobs or school but have enough free time to stay up-to-date with what is going on in the global economy.

Swing trading strategies employ fundamental or technical analysis in order to determine whether or not a particular currency pair might go up or down in price in the near future.Swing trading attempts to identify “swings” within a medium-term trend and enter only when there seems to be a high probability of winning.

For example, in an uptrend, you aim to buy (go long) at “swing lows.” And conversely, sell (go short) at “swing highs” to take advantage of temporary countertrends.

Swing Trading Highs and Lows

Because trades last much longer than one day, larger stop losses are required to weather volatility, and a forex trader must adapt that to their money management plan.You will most likely see trades go against you during the holding time since there can be many fluctuations in the price during the shorter time frames.

It is important that you are able to remain calm during these times and trust in your analysis.

Since trades usually have larger targets, spreads won’t have as much of an impact on your overall profits.

As a result, trading pairs with larger spreads and lower liquidity is acceptable.

Forex Swing Trading

Types of Swing Trading

How do you swing trade?

There are several different trading strategies often used by swing traders.

Here are the four most popular: reversalretracement (or pullback), breakouts, and breakdowns.

Reversal Trading

Reversal trading relies on a change in price momentum. A reversal is a change in the trend direction of an asset’s price. For example, when an upward trend loses momentum and the price starts to move downwards. A reversal can be positive or negative (or bullish or bearish).

Retracement Trading

Retracement (or pullback) trading involves looking for price to temporarily reverse within a larger trend. Price temporarily retraces to an earlier price point and then continues to move in the same direction later.

Reversals are sometimes hard to predict and to tell apart from short-term pullbacks. While a reversal denotes a change in trend, a pullback is a shorter-term “mini reversal” within an existing trend.

Think of a retracement (or pullback) as a “minor countertrend within the major trend”.

If it’s a retracement, price moving in the against the primary trend should be temporary and relatively brief.

Reversals always start as potential pullbacks. The challenge is to know whether it is only a pullback or an actual trend reversal

Breakout Trading

Breakout trading is an approach where you take a position on the early side of an UPTREND, and looking for price to“breakout”. You enter into a position as soon as price breaks a key level of RESISTANCE.

Breakdown Strategy

A breakdown strategy is the opposite of a breakout strategy.  You take a position on the early side of a DOWNTREND, and looking for price to“breakdown” (also known as a downside breakout). You enter into a position as soon as price breaks a key level of SUPPORT.

You might want to be a swing trader if:

  • You don’t mind holding your trades for several days.
  • You are willing to take fewer trades but more careful to make sure your trades are very good setups.
  • You don’t mind having large stop losses.
  • You are patient.
  • You are able to remain calm when trades move against you.

You might NOT want to be a swing trader if:

  • You like fast-paced, action-packed trading.
  • You are impatient and like to know whether you are right or wrong immediately.
  • You get sweaty and anxious when trades go against you.
  • You can’t spend a couple of hours every day to analyze the markets.
  • You can’t give up your World of Warcraft raiding sessions.

If you have a full-time job but enjoy trading on the side, then swing trading might be more your style!

It is important to remember that every trading style has its pros and cons, and it is up to you the trader,  which one you will choose.

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2. Which Type of Trader Are You?

Day Trading

Day trading is a popular trading strategy where you buy and sell a financial instrument over a time frame of a single day’s trading with the intention of profiting from small price movements.

Day trading is another short term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over.

These traders like picking a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss.

They DON’T like holding their trades overnight.Day trading is suited for forex traders that have enough time throughout the day to analyze, execute and monitor a trade.

If you think scalping is too fast but swing trading is a bit slow for your taste, then day trading might be for you.

You might be a forex day trader if:

  • You like beginning and ending a trade within one day.
  • You have time to analyze the markets at the beginning of the day and can monitor it throughout the day.
  • You like to know whether or not you win or lose at the end of the day.

You might NOT be a forex day trader if:

  • You like longer or shorter term trading.
  • You don’t have time to analyze the markets and monitor it throughout the day.
  • You have a day job.

Some things to consider if you decide to day trade:

Stay informed on the latest fundamentals events to help you choose a direction

You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.

Do you have time to monitor your trade?

If you have a full-time job, consider how you will manage your time between your work and trading. Basically….don’t get fired from your job because you are always looking at your charts!

Types of Day Trading

Day traders looking to maximize intraday profits often use one or multiple of the following day trading strategies.

Trend Trading

Trend trading is when you look at a longer time frame chart and determine an overall trend.Once the overall trend is established, you move to a smaller time frame chart and look for trading opportunities in the direction of that trend.

Using indicators on the shorter time frame chart will give you an idea of when to time your entries. For an example of this style of trading, see Pip Surfer’s world-renowned Cowabunga System.

First, determine what the overall trend is by looking at a longer time frame.

You can use indicators to help you confirm the trend.

Day Trading System

Once you determine the overall trend, you can then move to a smaller timeframe and look for entries in the same direction.

Remember this? It’s called Multiple Time Frame Analysis!

Entry on 15-minute chart

Countertrend Trading

Countertrend day trading is similar to trend trading except that once you determine your overall trend, you look for trades in the opposite direction.

The idea here is to find the end of a trend and get in early when the trend reverses. This is a little riskier but can have huge payoffs.

Counter trend day trading

In this example, we see that there was a long and exhausted downtrend on the 4hr chart. This gives us. an indication that the market may be ready for a reversal.

15-minute countertrend entry

Since our thinking is “counter-trend”, we would look for trades in the opposite direction of the overall trend on a smaller timeframe such as a 15-minute chart.

Four hour countertrend reversal

Traders who use this strategy need to be quick to spot the end of a trend in order to open a position at the optimal entry point.

This strategy is fighting the trend and can work against traders at times.

Remember that going opposite of the trend is very risky, but if timed correctly, it can have huge rewards!

Countertrend trading favors those who know recent price action really well and so know when to bet against it.

Range Trading

Range trading, sometimes referred to as channel trading, is a day trading strategy that starts with an understanding of the recent price action.

A trader will inspect chart patterns to identify typical highs and lows during the day while keeping a close eye on the difference between these points.

For example, if the price has been rising off a support level or falling off a resistance level, then a trader might choose to buy or sell based on their perception of the market’s direction.

This is known as “trading in a range“, where each time price hits a high, it falls back to the low. And vice versa.

A day trader who is using this strategy who is looking to go long will buy around the low price and sell at the high price.

A day trader who is using this strategy who is looking to go short will sell around the high price and buy at the low price.

Most range traders will use stop losses and limit orders to keep their trading in line with what they perceive to be happening in the market.

stop loss order is the point at which a position is automatically closed out if the price of the security drops below the trader’s entry point.

limit order is the automatic closing of a position at the point where the trader perceives a profitable run could end.

Range trading requires enough volatility to keep the price moving for the duration of the day, but not so much volatility that the price breaks out of the range and starts a new trend.

But if the price does break out, there’s a strategy for that as well…

Breakout Trading

Breakout trading is when you look at the range a pair has made during certain hours of the day and then placing trades on either side, hoping to catch a breakout in either direction.

This is particularly effective when a pair has been a tight range because it is usually an indication that the pair is about to make a big move.

Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!

Breakout day trading

In breakout trading, you determine a range where support and resistance have been holding strongly.

Once you do, you can set entry points above and below your breakout levels.

As a rule of thumb, you want to target the same amount of pips that makes up your determined range.

Make sure you check out our “Trading Breakouts” lesson so you get this down pat!

News Trading

News trading is one of the most traditional, predominantly short term-focused trading strategies used by day traders.

Someone who is news trading pays less attention to charts and technical analysis. They wait for information to be released that they believe will drive prices in one direction or the other.

This information could be a report releasing economic data, such as unemployment, interest rates or inflation, or simply breaking news or random presidential tweets.

To do well with news trading, day traders tend to have a solid understanding of the markets in which they’re trading.

They develop the insights to determine how the news will be received by the market in question in terms of the extent to which its price will be affected.

They will be alert to various different news sources at the same time and know when to enter the market.

The drawback of news trading is that events that cause substantial movements in prices are usually rare.

More often than not, the expectations of such events are factored into the price in the run up to the announcement.

If you’re interested in news trading, we devote an entire section to it in our School of Pipsology called “Trading the News“.

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2. Which Type of Trader Are You?

Scalping

Scalping is like those high action thriller movies that keep you on the edge of your seat. It’s fast-paced, exciting, and mind-rattling all at once.

Scalp trading, also known as scalping, is a popular trading strategy characterized by relatively short time periods between the opening and closing of a trade.

These types of trades are usually only held onto for a few seconds to a few minutes at the most!

The main objective for forex scalpers is to grab very small amounts of pips as many times as they can throughout the busiest times of the day.

Its name is derived from the way its goals are achieved. A trader is literally trying to “scalp” lots of small profits from a huge number of trades throughout the day.

What makes scalping so attractive to traders?

Smaller moves happen more frequently than larger ones, even in relatively calm markets. This means that there are many small movements from which a scalper can benefit.

Scalpers can place up to a few hundred trades in a single day, seeking small profits.

All positions are closed at the end of the trading day.

Because scalpers basically have to be glued to the charts, it is best suited for those who can spend several hours of undivided attention to their trading.

It requires intense focus and quick thinking to be successful. Not everyone can handle such fast and demanding trading.Check out this post by our regular psychologist, Dr. Pipslow, on how to work on your concentration skills.

It is not for those looking to make big wins all the time, but rather for those who like raking in small profits over the long run to make an overall profit.

The strategy behind scalping is that lots of small wins can easily morph into large gains.

These small wins are achieved by trying to profit from quick changes of the bid-ask spread.

Scalping focuses on larger position sizes for smaller profits in the shortest period of holding time: from a few seconds to minutes.

The assumption is that price will complete the first stage of a movement in a short span of time so you aim to take advantage of market volatility.

The main goal of scalping is to open a position at the ask or bid price and then quickly close the position a few points higher or lower for a profit.

A scalper wants to quickly “cross the spread“.

For example, if you go long EUR/USD, with a bid-ask spread of 2 pips, your position instantly starts with an unrealized loss of 2 pips.

Remember, when you buy, you buy at the ask price. But in order to exit, you need to sell, which is the bid price.

A scalper wants that 2-pip loss to turn into a gain as fast possible. In order to do this, the bid price needs to rise enough so it’s higher than the ask price that the trade initially entered at.

You might be a forex scalper if:

  • You like fast trading and excitement
  • You don’t mind being focused on your charts for several hours at a time
  • You are an impatient person who doesn’t like to wait for long trades
  • You can think fast and change bias, or direction, quickly
  • You have fast fingers (put those esports skills to work!)
  • You are a surgeon!

You might NOT be a forex scalper if:

  • You easily get stressed in fast-moving environments
  • You can’t commit several hours of undivided attention to your charts
  • You’d rather make fewer trades with higher profit gains
  • You like taking your time to analyze the overall picture of the market

Some things to consider if you decide to scalp:

Trade only the most liquid pairs

Pairs such as the EUR/USD, GBP/USD, USD/CHF, and USD/JPY offer the tightest spreads because they tend to have the highest trading volume.

You want your spreads to be as tight as possible since you will be entering the market frequently.

Trade only during the busiest times of the day

The most liquid times of the day are during the session overlaps. This is from 2:00 am to 4:00 am and from 8:00 am to 12:00 noon Eastern Time (EST).

Make sure to account for the spread

Because you enter the market frequently, spreads will be a big factor in your overall profit.

As each trade carries transaction costs, scalping can result in more costs than profits.

That’s like working for an hour in a job that pays $5/hr and then going out and buying a $6 Starbucks Caramel Ribbon Crunch Frappuccino.

Be sure your targets are at least double your spread so that you can account for the times the market moves against you.

Try focusing on one pair first

Scalping is very intense and if you can put all your energy in one pair, you’ll have a better chance at being successful.

Trying to scalp multiple pairs simultaneously as a noob will almost suicidal.

If you start to get accustomed to the pace of things, then you can start by adding on another pair and see how it works for you.

Make sure you follow good money management

This goes for any type of trading, but since you are making so many trades within a day it is especially important that you are sticking to risk management practices.

Major news reports can throw you off

Because of slippage and high volatility, trading around highly anticipated news reports can be very dangerous.

It sucks when you unexpectedly see price jump in the opposite direction of your trade because of a news report!

Be prepared and know what’s coming out by checking out the BabyPips.com economic calendar.

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2. Which Type of Trader Are You?

Know The Different Types Of Trading Styles

Each trader is unique.

There are over 8 billion people in the world (including space aliens disguised as humans and automobiles) and not one person is exactly the same as another.

Even identical twins will have different fingerprints.

Everyone has their own look, personality, talents, and pizza topping preferences (we like pepperoni and potato chips).

We all like different things and are unique in our own way.

Trading is the same way. Our unique personalities will lead us to trade differently from one another.Some may be aggressive, “type A” personality traders while others may be more relaxed, “type B” personality traders.

Some may like taking small wins all the time, while others don’t mind losing a bit in order to make those huge gains when they do win.

As traders, there are a wide variety of approaches available to try to interpret price movements and try to profit from them.Some traders may use a particular approach almost exclusively.

The point is that no two traders are alike.

Even if a group of people was to trade the same system rules, each person’s end results would most likely be different from everyone else.

Is that a bad thing?

Not at all!

Our uniqueness is what makes the world go round, so it’s important to know your lifestyle and personality to help identify trading strengths and weaknesses.

If your stomach has always been sensitive to spicy food since birth and you try to force yourself to eat pizza loaded with habanero and jalapeño peppers to try to impress that hot gal or guy while on a date, this will probably result in you experiencing frustration (on the toilet seat) and may eventually hinder the toilet (from flushing).

The same goes for trading.

Trying to force a trade that doesn’t match your personality will result in frustration and can hinder you from making consistent profits.