Today my focus is on the different types of traders that are involved with forex trading.
Types of traders can be identified using an array of things like how one trades, tools used while trading, and behavioral attributes associated with the trader, among other things.
The forex market has various types of traders who sell and buy currencies and securities including indices, energies, stocks, metals, and more.
These types of traders execute their trading activities using varied techniques and make use of different software and platforms to aid in their endeavors.
Forex traders operate using different trading strategies as they try to predict the direction of the inherent market.
These different trading techniques used by forex traders are centered on the forex market knowledge, whether a trader is a newbie or well experienced, and whether the trading strategy is in line with the trader’s objectives or trading plan.
Types of Traders Based on Trading Strategies Used
These are short-term traders who aim at holding positions for short periods like a few seconds or some minutes.
Forex scalping strategies comprise of frequent trading all day with the aim of achieving little returns during those periods when the market is most liquid.
These types of traders live in a fast lane and are always dealing with new trading information while responding to swift market changes every now and then.
They are quite observant, have high instincts, are quick-witted but normally under a lot of pressure.
2. Day Traders
Day traders are the type of traders that tend to pick a side (either buy or sell) in the market for a given currency pair at the start of the day, and end up closing the trade before the day ends having earned either a profit or a loss.
Day traders do not hold overnight trades. As a result, they are able to avoid swap related costs.
Read: Best Day Trading Books
3. Swing Traders
Swing traders, on the other hand, tend to hold their trades longer compared to scalpers and day traders.
A swing trader can remain in an open position for days, weeks, or even months.
During the time when they are in a trade, swing traders basically favor technical analysis as opposed to fundamental analysis.
However, they are still conversant with relevant news events based on the currency pairs that they are trading for the sake of being on par with the prevailing volatility.
Swing trading is not as frantic as day trading and scalping and thus does not require a lot of extreme alertness.
However, swing traders are still required to follow up on trading chart analysis so as to assess whether a certain trend is going to proceed or whether the trend is almost reversing.
4. Position Traders
Position traders tend to trade currency pairs or securities such as stocks, in the forex market.
They do this through holding trade positions for a long time – weeks or months and at times even years.
These types of traders hardly worry about short-term changes in price or about daily news releases.
They are not active traders, and they only engage in a few trade positions in a year.
They use weekly and monthly time frames price action analysis to ensure that their chosen asset moves in line with a certain market trend.
They earn profits from key price moves or major trends in the market.
In addition to using technical analysis, position traders also have to use fundamental analysis.
This is because they have assessed the general strength or weakness of a currency or stock based on the prevailing economic, social, political, or natural factors.
Combining both strategies is important for these types of traders since they maintain an open position for a substantial amount of time.
Using both strategies offers position traders a good review of the forex market, allows them to make better decisions and to participate in a complete evaluation of the financial assets in context.
Types of Traders Based on Personality
1. Copy Traders
Copy traders do not fully rely on themselves while executing their trades.
They are advised by analysts and follow the given trading ideas, which give them a good general view of the market because of the numerous views and opinions they take in.
This is a category of traders that I would not want any of my students to get into.
Most of the advice and opinions being offered can lead to distraction; hence you will never have the time to learn anything.
What will happen when the person you are copying your trades from is no longer trading?
2. Prophet Traders
These types of traders mainly aim at foretelling the movement of the market and have everybody know that they did that.
They normally believe that they know how the market works better than anyone else.
They like it when they are calling the tops and bottoms or predicting what the market will do next.
The problem with these types of traders is that they do not actually discuss their individual trading as they are only interested in predicting market moves.
As a result, you can’t even tell whether they are active traders or not.
3. Gambling Traders
Many traders fall within this category even without knowing.
Any time you get involved in live forex trading without any forex education, what you are simply doing is gambling because you do not know what you are doing.
Gambling traders are usually exposed to high risk since they end up using high leverage without even knowing the drawdown that this has.
These types of traders aim at getting quick money; extreme gains without averting risk. They come into the market with a get rich quick mentality.
They do not put in time and effort in learning about the ins and outs of the market.
What they do is just chase the market.
They are normally greedy for much more and normally end up in losses. This offers them a short and unpleasant trading experience.
These are the types of traders that end up saying that forex trading is scam due to the stupid losses that they accrue.
4. Paper Traders
Paper traders really love the market as they take time to study it more than most traders.
They, however, hardly manage to get into the real trading as they remain in their comfort zone doing paper trading.
They are unable to move from paper trading into the real markets.
These types of traders are knowledgeable and give you very good advice when it comes to trading, but they are not involved in trading themselves.
One of the things that holds them back is a lack of confidence as they still have that fear of losing money in the market.
What I would advise such traders is to start small and upgrade as they gain more confidence.
5. Educated Traders
These are traders who invest time to study and better their trading skills.
They learn and implement different trading strategies, and also learn from other traders’ mistakes.
Such traders have a clear trading strategy that is very well planned.
Being an educated trader takes a lot in terms of time and effort, as one has so much content to grasp, which can be overwhelming and easily distracting if not well managed.
But this is the best thing you will ever do to your trading career. That time you sacrifice to learn and master the relevant concepts will pay out big time in the long-run.
The difference between educated traders and paper traders is that educated traders take action while the latter don’t.
6. Scared Traders
Scared traders have one simple aim, which is to ensure they do not lose their trading capital.
They take profits as soon as they are generated and close losing trades immediately.
It is good to cut losses early, but you should have a way of defining when you consider that a trade is not going your way.
The fact that a trade starts going against your direction the moment you enter does not necessarily mean that it is going to be a losing trade.
It might be that you entered the trade early, and it will soon start going in your desired direction, or it is just having a pullback and then continue with the trend.
Ensure that you use a stop loss for all your trades, as this will automatically tell you that a trade is not working for you the moment it is triggered.
Taking profits early is also not good for a trader. One thing that makes profitable traders is not just cutting losses early but also letting winners to ride.
7. Arrogant Traders
The aim of arrogant traders is to show how right they are and fulfill their sensitive egos. They tell lies, hence erase previous tweets and posts that contradict their assertions.
They also never accept mistakes, and when wrong, they cover it up and are loud about the things they do right.
These types of traders believe what they do, or the way they trade is the only way that a trader can become profitable.
8. Adventurous Traders
Such traders are always anxious to start trading and are usually involved with large position sizes.
They are less conservative while managing their trading capital, and this leaves them exposed to a higher risk of losing.
They fully believe in themselves and in trading, and they get plenty of positive as well as negative experiences from the many transactions they make.
Given that they are thrill-seeking, they are likely to enter trades without serious consideration.
These types of traders are usually aggressive in their entries are rarely wait for solid confirmation signals.
9. Greedy Traders
Greedy traders risk a lot, and they open very large positions since they mainly target easy returns.
In return, such traders blow their accounts.
The problem here is that the focus is only on the profits that they are likely to accrue, which makes them forget the possible losses (which are usually high too).
These types of traders last for a very short period in the market.
10. Cautious Traders
Safety is a key priority for cautious traders, although it is somewhat limiting.
Such traders are a bit reserved and make fewer trades than they actually could.
The hesitations make these traders miss out on many opportunities, as cautious traders work to ‘prevent potential losses’ as they manage their capital.
I wouldn’t say that they operate in the same way as scared traders, as this would not be true.
Being cautious does not mean that you are scared.
Actually, cautious traders end up having a high winning rate since they are not aggressive in their entries.
They wait for proper confirmation before they decide to take a position in the market.
These are the types of traders that are likely to follow their trading plan without fail.
Yes, they might miss out on trades, but they end benefiting significantly on the ones that they catch.
In conclusion, you have seen the different types of traders based on personality and trading strategy. It is upon you to decide what type of trader you want to be.