Forex market, being the largest financial market in the world is full of different categories of forex traders who buy and sell currencies and securities like indices, stocks, metals, energies, softs, ETFs etc. These set of traders trade the forex with different techniques while utilizing a good number of software and platforms that facilitate their trading activities. Different forex traders work with different trading strategies while predicting or making speculations in the forex market. Various trading techniques adopted by forex traders are majorly based on the knowledge of the forex market (being a beginner or an expert trader) and the trading strategy that fits his/her goals. The following will discuss the basic types of forex traders found in the forex market.
A forex day trader is one who closes all trade positions at the end of each trading day and makes sure there are no open positions overnight. Day traders function with an extensive knowledge and experience of what the forex entails. This category of forex traders makes use of a variety of methods to make proper trading decisions that lead to success. Some trade securities with the use of technical indicators and analysis in the calculation of favorable trade entry and exit timeframes while other trade based on instincts.
In general terms, day traders operate with price action characteristics to buy, sell and hold trade positions instead of fundamental data analysis employed by other categories of traders. A currency’s price volatility and average day range is an important element that day traders take seriously. Before a trade can be initiated, it is very important that the security in question have sufficient price movement. Day traders make profits from the price movements of securities. Trading is established on the ground of entering and exiting a trade position at a very fast rate. This makes volume and liquidity very crucial. Therefore, financial securities with a small daily range or volume won’t be of any interest to a day trader. Forex day traders focus on events that cause short-term forex market moves. This makes trading the news a very popular technique in day trading. They trade based on information they acquire from scheduled economic news releases such as the economic statistics of a country, corporate earnings, and interest rates. These economic expectations cause significant moves in the forex market when they are met or exceeded thereby generating profits for day traders.
Position traders trade securities in the forex market by holding a trade position for a long-term, in a period of weeks to months and sometimes, years. These set of traders, unlike day traders, are less concerned with short-term price fluctuations and the economic news release of the day. Position traders are not active traders. They initiate few trade positions in an entire year.
This set of traders make use of weekly and monthly price action analysis chart to ascertain how a security moves in relative to a particular trend. They make profits and returns from the price moves in primary trends. Here, trades are performed with emphasis on both fundamental and technical analysis. These trading indicators give position traders a better evaluation of the forex market, gives them the ability to make better trade decisions, and take part in a total evaluation of the financial assets in question.
Forex swing traders are those who make profits and returns in the forex market by holding a trade position overnight to several weeks. These set of traders make use of fundamental analysis, the intrinsic value of a security, price trends, patterns, and technical analysis to search for financial instruments with short-term price momentum. Swing traders trade by the identification of securities which has an extraordinary possibility to move in a short time frame. The goal in swing trading is to trade on large price moves on a daily basis by spending longer time (weeks and months) monitoring the security in question.
Swing traders buy securities when the market moves in an upside swing and sell securities when the swing halts, stops or have topped out. Their focus is usually based on a particular asset. This helps them best understand the movement that takes place within the asset. Swing trading comes along with a lot of advantages. Traders make higher returns and profits than a buy and hold investor and this aspect is best for those that trade for a living. In addition, swing trading experience less risk when compared to other types of trading. Furthermore, it doesn’t involve watching the market in real time.
Forex scalpers are traders who hold a trade position for a short-term period in an attempt to make profits out of the short hold. These set of traders buy and sell securities many times in a day with the mindset of making a small percentage of consistent profits out of the market. A scalper uses a manual and automated trading system on various platforms thereby developing functional strategies that generate profits from the bid and ask spreads. The manual system of trading involves the trader making trade executions while sitting in front of his computer while the automated trading strategy involves the trader setting rules and guidelines on how to use trade signals.
Forex scalping strategy yields more profits in times of high volatility and sufficient market moves. However, there is a certain percentage of risk associated with this trading strategy. Once a scalp trader enters a trade position in which they find it difficult to exit from, they can be left with an open trade position that could lead to a loss of profits.
In conclusion, the forex market is filled with a lot of benefits for forex traders. However, forex traders should not neglect the number of risks associated in trading currencies in the forex market. It is very important that as a trader, you evaluate your trading skills and understand the forex market before trading assets in it. With this, the selection of a trading strategy on if you would become day, swing, position or scalper trader will be more certain.