What type of trader should I be ?

There are many types of traders and because of confusions I see everyday on the web, I've decided to write an article about it. Also, I will try to explain in details, the differences between them.

Because I've been involved in management and this has become "my second nature", I can't help myself not to show you the SWOT Analysis for all the types of traders. Hopping with this, you will think twice, when you will chose your path in this field.


Trader - is a person that buy and sell financial instruments, expecting for profits.


Day Trader ( Intraday Trader ) - is a person that trade intraday. That means he will open and close positions in the same day. Because there are many TFs in the intraday ( from M1 to H1 charts ), traders in this category can be scalpers or higher TFs traders ( M30, H1 ).


Day traders can be retail traders ( work for himself ) or institutional traders ( work for an institution ).

Because of this, we can consider intraday trading, the biggest "battlefield" on the financial markets.
That's why I've always said, that trading intraday, specially on lower TFs, is not for the beginners. Yet, many people start trading like this ( first on demo, then on real money accounts ), because they don't have patience. They think they don't have time to "wait" a position to be in profit on higher TFs, so they start intraday trading.

Trade fast = lose money fast, if you don't know what you're doing. Or if you don't have time...you should have money...to lose, in order to learn ( by practicing ).

This wrong idea of starting your trading carrier is influenced also, by many sellers in the field ( from brokers/ IB to strategy sellers and EA sellers ). They can't wait for you to "test" the markets for months. They need to "sell trading to live", even if some of them claim they are "traders for living". And they want their commission "yesterday" if possible...And because of this, probably the most common sentence you've heard was: "You saw the profits with these few trades....Let's start to make some money...!!!" And we wonder why 95% lose money in this market ?


Swing Trader - is a person that keep opened positions longer than a day, but less than a Position Trader. On Forex keeping a position opened longer than 2 weeks, might not be profitable, because of the swap points ( except long positions ).



I'm a swing trader ( and a bit trend follower trader ) for few years now and even if I've started like many others on intraday, I must say nothing compares with trading H4, Daily and Weekly charts. Setting up my charts, dont take me more than 1h/few days. And even if I'm watching my positions daily ( mostly for managing the opened positions and that's possible because I'm full-time trader, now ), that is not even necessary every day. So for this type of trading , max 1h/day is enough for taking care of your business. So, you can be part-time trader, as well. That's why I don't understand why people that have a day job, try to trade intraday, in their free time, always complaining they lost good trades because of their job and lose money because they can't trade in the "right" session.

Also, higher TFs are not that much influenced by daily news release ( need several days of bad news for a pair to chance the direction ).


Position Trader - is a person that keep his opened position longer time: from months to years ("buy and hold" - for Forex ). This term has been introduce first time for the traders that trade Future Contracts, because they are taking a "position" ( buy or sell ) for a financial instrument and keep it for months ( usually 3, 6, 12 months - for future contracts ).


In this category there are hedgers and speculators. But for me this is the definition for a person, that try to keep his savings, while making some profits, on the spot or the future market, as well.

For example, lets say you want to keep your money in the bank. Lets say you have 100,000 euro. First of all, keeping money in a bank deposit/account, even if will give you an interest, that doesn't mean you've made profits ( usually interest < inflation ). Ofcourse you should keep it, in a bank, in case you'll need it fast ( liquidity ). But what if you know you wont need it for 1 year or 2 years? ( savings/loans ). In which currency will you keep your money in the bank ? How do you know which currency will give you a higher interest ?


For a person with no financial education is hard to understand the process and most of them are just guessing ( gambling with their savings/loans and always hopping they'll be ok ). They are Position Traders, without even knowing it.

A position trader, unlike the other types of traders, can hedge his contracts ( or his savings/loans ). Let's say you have those 100,000 euro in your bank account ( or a loan ). That will be your "spot" position. In that moment you could "protect" your currency "position", by using margins and taking the opposite position with Future Contracts. And that is possible, using a margin of only 1% to 5% from your deposited/borrowed money ( only 1,000-5,000 euro ). Doing this even if lets say the value of your 100,000 euro is decreasing by inflation, the "loss" is compensated by the profits from the Future Contracts ( in this situation your bank deposit interest is sure profit ). And ofcourse if your bank account will increase the value of your money, this will be lowered by your loss from the Future Contracts ( but this second situation is rare ). So, hedging your position = "keeping" the value of your money.

A speculator can do that for profits, by using hedging and market arbitrage, for spot and/or future market.

In both sub-categories, a Position Trading, means: profits and protecting profits, on a longer period of time ( If the hedging necessity is for a period shorter than 1 month, Forex market might be a solution, as well, specially for long positions, when receiving swap points - since Future Contracts starts from 3 months period and you must pay a commission/contract ).

Conclusions:

While Position Trading can be considered investment with "sure" profits ( 80% of traders in profit ) and Intraday Trading is very risky ( less than 5% of traders in profit ), Swing Trading might be the best solution for you, after learning the basics of trading ( 15%-20% of traders in profit ).

This is how we end up to trading, right ? We wanted to make money, then we tried to keep it, while making more. And then we found out there are ways to put the money to "work for us" ( not us, working for money ).

So beginners, should start with Position Trading ( Weekly charts ) and after learning basics, they can successfully start Swing Trading ( Daily, H4 ). Intraday Trading is the "final level" in case we want to consider our trading activity, as a job. But I prefer to consider trading a profession, a business. And I want to invest less time with maximum results. That's why Swing Trading for me, is a way of living from trading !



Best Regards,
^^_Lord_Ice_^^

11 comments:

  1. Hi, I read your article and as I have read about types of traders I prefer day trader because I believe that if you examine and analyze currency and changes during the whole hours of the day you are more likely to avoid losses, you can have best managed forex accounts and increase the possibility to have greater profit. Thank you for giving me such information I can't really understand each kinds of trader but your article had helped me. thanks

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