Forex trading is attracting more investors every day. The foreign exchange market presents a lot of money making opportunities and it is now relatively easy to enter thanks to online brokers and today’s best trading platforms. Aside from the relatively low entry barrier, forex trading is also easy to learn.
Mastering the basics of forex trading is the first step towards becoming a successful trader. You also need to develop the right trading strategy based on your personal preferences and the kind of trader you want to be. To help you get started, we are going to talk about the different types of forex trader.
The Day Traders
Day traders are the most common type of forex trader on the market. As you can tell by the name, day traders open and close their transactions within the same day. They seldom extend their trades to the next day or hold a position over an extended period of time; as a day trader, you still have the option to do so when you think the market is moving in the right direction, but make sure not to make decisions impulsively to avoid typical day trading mistakes.
As a day trader, you will be focusing more on the daily activities of a forex pair (or several pairs). The approach is popular because there is fewer news to follow. You can also focus on technical indicators and the movements of the pair throughout the day to bank pips and earn a profit.
The Swing Traders
Swing traders sit between day traders and position traders in terms of trading period. Swing traders don’t mind holding a position for several days. In fact, the main goal of most swing traders is to ride the bigger waves and aim for a better short-term return.
As a swing trader, you don’t have to monitor the charts all the time. You can simply review the market for a few hours every day, figure out the general trend, and open positions accordingly. You can still stay up to date with market developments, plus you can now learn from other traders. This means for swing traders, social trading platforms would be more appropriate if they want to learn from other traders. ZuluTrade and eToro are two of the most popular social trading platforms that you may want to try, and through some companies such as InvestinGoal you can access social trading tools relevant to these websites to help analyse data.
The Position Traders
The position traders focus on long-term gains. Trading as a position trader requires better understanding of the market and great insight on the fundamentals. When you assume this trading style, you will be focusing more on the development of currencies in a forex pair over a longer period of time.
Similar to swing traders, position traders seldom stay in front of the trading platform for more than a few hours. Positions can stay open for weeks, months, and even years depending on the market condition.
Scalpers are rather unique, but it is a popular forex trading stance too. Instead of aiming for bigger gains, scalpers simply take advantage of the volatility of the forex market and bank smaller profits – often no more than 5 pips – in a matter of minutes. It is an exciting approach to use and it certainly makes forex trading easier, since you don’t have to rely too much on fundamental analysis.
So, which type of forex trader are you? The best way to answer the question is by opening a demo account and giving forex trading a try. You will find the trading style that suits you best in no time.