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If you’re a beginner in trading, defining what kind of trading style resonates with you is key. This list of different types of Forex trader styles is here to help.
On the other hand, if you’re experiencing a trading style existential crisis and looking to reinvent what type of forex trader you are, this list will help you decide if you should switch from one Forex trading style to another.
The 6 Main Types of Forex Traders:
- Scalper
- Day Trader
- Swing/Momentum Trader
- Position Trader
- Algorithmic/Technical Trader
- Event-driven/News/ Fundamental Trader
Other Types of Forex Traders:
- Noise Trader
- Sentiment Trader
- Contrarian Trader
- Market Timer
- Arbitrage Trader
- Trend Trader
With so many choices, it can be difficult to decide. You may want to try out different types of forex trader styles before deciding on committing to one. Let’s take a deeper look at the different types of traders in forex.
Forex Trader Type #1 ‒ Scalper
A forex scalper is a person who trades currency pairs with the intention of making small profits over a short period of time. A scalper may keep trades open for a few minutes or even seconds and quickly closes them while they’re still making a profit.
A forex scalper trader will usually open positions with very small stop losses and tight stop loss orders in order to minimize risk and maximize returns. Scalpers usually use very tight trading ranges, so they can enter and exit their positions quickly.
Is Scalping Right For You?
If you're a trader who wants to be able to place trades quickly, scalping is probably the trading style for you. Scalping trading style allows traders to place small but frequent trades, which can be advantageous when markets are moving quickly.
Scalping is one of the most popular trading styles because it requires a high level of discipline and self-control. It's a good fit for anyone who enjoys being in control of their own destiny and making decisions quickly, as well as those who don't mind risking small amounts of money on each trade.
Forex Trader Type #2 ‒ Day Trader
Day trading is a short-term investing trading style that involves buying and selling currencies in the same day. It's different from long-term investing because you're focused on maximizing small gains rather than building wealth over time.
The benefits of day trading are that you can make money quickly, and it's easier to learn about market trends. However, there are also risks associated with day trading—you could lose money quickly, too!
Is Day Trading Right For You?
Day trading is a great way to make money, but it's not for everyone. If you're the kind of person who wants to spend your time and energy on something other than making money, day trading may not be right for you.
On the other hand, if you're the kind of person who loves living on the edge, diving into analytics, studying the markets, and taking risks, then day trading could be a perfect fit for your personality.
Forex Trader Type #3 ‒ Swing Trader
A swing trader is a different type of forex trader who trades in the forex market by buying and selling currencies over the course of several days, rather than in one day. Swing traders typically aim to make small profits on many trades, rather than going for larger gains but with more risk.
Is Swing Trading Right For You?
Swing trading is a great option for people who want to invest in forex but don't have the time to spend taking daily actions. Swing trading is good for people who don’t want to spend their days glued to a screen, waiting for the perfect moment to buy and sell currencies.
To be a swing trader you need to have patience and discipline. You need to have the ability to sit through periods of loss so that you can take advantage of opportunities when they arise. It's not easy turning down a quick profit because your research says it's not the right time to buy or sell. If you're able to do those things successfully, then you might just find yourself with a steady stream of income from your trading activities!
Forex Trader Type #4 ‒ Position Trader
Position traders typically make trades for the long term, hoping to see a return on their investment. They buy and sell currencies based on factors like interest rate differentials and political trends.
These types of traders are more interested in long-term trends, such as the US dollar's gradual decline against the euro or yen over several years. They don't keep an eye on the market all day; they use technical analysis to decide when to buy and sell.
Is Position Trading Right For You?
Position trading is a great choice as a trading style for most traders, but it's not for everyone.
Forex position traders are dedicated to the market and have a strong desire to be in control of their investments. They are able to focus on the long-term, even when there are short-term fluctuations in the market.
If you're someone who can't stand losing money, or if you have trouble focusing on the long-term and prefer trading with short-term strategies like day trading, then forex position trading may not be right for you.
Forex Trader Type #5 ‒ Algorithmic/Technical Trader
An algorithmic trader is a type of trader that uses computer programs to execute trades automatically using pre-programmed trading strategies. Algorithmic trading is more quantitative than traditional trading because it uses numerical models and algorithms to make decisions.
Algorithmic traders rely on computers to execute trades quickly and efficiently. They use software programs to analyze market data and generate buy or sell signals for particular stocks. These signals can be used to place orders through electronic communication networks (ECNs) or other electronic trading platforms. Algorithms are used by both institutional traders as well as by retail traders who may be investors looking to buy instruments for their own portfolios.
Is Algorithmic Trading Right For You?
If you’re a person who likes working with technology and programming then this type of trading is right for you. You will either need to code on your own or buy a program that is already coded and programmed to give you the information you need and take actions on your behalf.
Forex Trader Type #6 ‒ Event-Driven/News/Fundamental Trader
There are many ways to describe this type of trader: event-drive, fundamental, or news trader. An event-driven forex trader trades based on events that can affect the price of a currency. These events include national and international political decisions, economic reports, and natural disasters.
Event-driven trading is different from other types of trading in that it's not based on technical analysis or charting patterns. Instead, it relies on news reports from news outlets around the world that are often reported before they are published officially.
Event-driven forex traders typically only make one trade per day, so they need to be very selective about which events they follow.
Is Event-Driven Trading Right For You?
You would be good at this type of trading if you enjoy staying updated on international news and have an understanding of how events might affect markets. You will be adept at digesting new information and making predictions about the course of both global and localized events and how they affect currencies since you are observant, and forward-thinking.
Other Types of Forex Traders
There are many more types of forex traders. Below is a list of a few more trader types where some could be described more as types of trader personalities rather than strategic trading styles, such as noise traders, and where others are clearly strategic, such as contrarian traders.
Noise Trader
A noise trader is someone who basically listens to ‘the noise’ in order to make decisions. It’s a personality type that makes decisions based on feelers, hype and rumour. They rarely base decisions on technical and fundamental analysis or advice from professionals.
Sentiment Trader
A sentiment trader is someone who uses the collective mood of the market to predict future price movements in a given currency pair. They look at social media, news websites, and other factors to try to determine whether the public is bullish or bearish on a currency pair, and then they trade accordingly.
Contrarian Trader
In forex trading, a contrarian trader is someone who looks to make trades in the opposite direction of the majority of traders.
When the market is moving higher, a contrarian trader will look for opportunities to sell. When the market is moving lower, a contrarian trader will look for opportunities to buy.
Market Timer
A market timer is a type of trader that moves invested capital in or out, from one asset to another based on predictions from signals, charts, and other analysis. If a trader can predict when and in which direction a market will move, they can make a trading decision that can influence the market to move into a profitable position.
Arbitrage Trader
An arbitrage trader takes advantage of the small price differences between identical or similar assets. They buy the asset in one market and sell for slightly higher price in another and pocket the profits.
Trend Trader
A trend trader is someone who trades based on the direction that the market is moving in. They look for clear signals, and then make a decision based on those signals. Trend traders believe that there are always trends in the market and that by riding them, they can make a lot of money.
Trend traders don't care what the market is doing—they just want to make money. And they know that if they can find a trend, they'll be in good shape. So they use technical indicators to find out where the market is heading and get in on it before everyone else.
FAQ: What type of trading is best for forex?
From the list of different types of forex traders and trading styles above, the ones that seem to work best for forex trading are:
- Scalping: where you can potentially make small profits quickly
- Day trading: make trades on the same day using technical analysis
- News trading: use world events, and their effect on currencies, to guide your trades
- Swing/ momentum trading
- Trend trading: you follow the current trend making it potentially easier to predict what the market will do next.
FAQ: What is the safest forex strategy/ type of forex trader style?
There is always a risk involved when trading forex, however, there are tips to implement to help you trade more safely.
One of the most dependable and straightforward forex trading strategies is trend trading. This kind of trading technique entails trading in the direction of the current price trend, as the name would imply. Traders must first determine the general trend's strength, direction, and duration in order to do this efficiently.
FAQ: Is there a 100% winning strategy in forex?
The answer is no, there is not a 100% winning strategy in forex. If you think about it, if every trader won, the forex market would cease to exist very quickly. While it is true that some people have made millions of dollars trading currencies, the truth is that some traders have lost money as well.
The reason many traders lose money is because they do not apply a strategy, or they jump from strategy to strategy and don’t stick to it or wait it out.
If you want to be successful at forex trading, you need to create a strategy and then stick with it until you see what happens.
For better guidance on what direction the market may swing in, sign up to Prime Index’s trading signals.
