The art of trading has more to do with your personality type than you can imagine. You might think that everyone has it in them to become a trader provided that they do the hard work. But that is not technically true. Because we have a whole wide variety of different trader types.
Traders can in fact be categorized into various groups and classes based on, again, various factors. Other than your own personality type, there are many other factors that are involved in the classification of trader types.
In this article, we want to take a close look at how many different types of traders there are, what skills are needed for a successful trader, and also how you can choose the best trading type to suit your needs and skills.
What Skills Are Required for a Successful Trader?
Not everyone gets to become a successful trader. The reason is that beyond all the extravagance and money, trading is an arduous journey that you need to take toward success.
In fact, trading is among the most demanding and challenging professions in the whole world. It takes a whole lot to become successful in trading. So let’s go through some of the skills needed for this field.
First of all, you need to be an adaptable person. Trading is all about adaptation. Adapting to changing markets. Markets that could change in a matter of seconds.
Secondly, as a trader you need to have an extremely analytical mind. Critical thinking and having the ability to analyze the market and huge sums of numbers are extremely essential. At a certain point, trading is all about doing analysis.
Thirdly, you need to have a lot of resilience and be able to survive under tough conditions. Things could turn against you at any moment in a financial market such as the foreign exchange market. So you need to be able to tough it out when things get difficult. Furthermore, this resilience needs to be a mental resilience. Because it is precisely at those difficult times that you need to make the correct decisions and avoid your own mental biases.
Last but not least, another seriously important skill has to do with risk management. Being able to manage risk is a great part of trading in the forex market, or any other market for that matter.
Now, let’s see how you can pick your trading type.
How Should You Choose Your Trading Type?
When you have made the decision to bring some money into a market, such as the forex market, you need to decide on what type of trader you want to be.
In making that decision, there are so many considerations to go through. First and foremost, you need to think about your abilities and knowledge of trading.
Naturally, you need a baseline of knowledge and experience of trading before diving too deep into the water.
Furthermore, you need to consider how much time you want to put in trading. Do you want to trade every day? Then you can become a day trader or a scalper. Do you want to put your money in and then do something else? Then position trading might be the one to go with for you.
In addition, you must think about how much initial equity you are willing to bring. And, secondly, you need to think about how much of that initial asset you are willing to risk.
Would you be able to continue trading with no issue if you lost 20% of your initial assets?
These are the factors that ought to be clarified. Once you do that, you can choose what type of trader you want to be. Now, let’s look at the different types of traders.
What Are Different Trader Types?
Usually, when we want to discuss the types of traders, we would look at different trading styles and then different trading strategies. These evaluations would bring us to types such as day trader, position trader, swing trader, scalper, trend trader, etc.
But if we want to be more precise, then we can see that there are more classifications of trader type. The following are the most important of these:
First on the list, we have sentiment traders. These are traders who go about trading based on the user sentiment that exists in the market. Sentiment is a crucial factor that could really turn the tides and create various price movements.
Secondly, there are those traders who keep a look out for news in order to make their movements in the market. There are some pieces of news that are so crucially important that they can easily impact the market. News including economic news such as the release of important data like gross domestic product, consumer price index, consumer confidence index, etc.
Swing trading is among the major trading styles that exist in any market, including the forex market. Swing trading includes opening positions when swings occur in the market, which could be either upswings or downswings, and then keeping the position open for long enough to benefit. The open position can last from days to weeks or even longer.
This type of trading is more suited for cautious traders who want to use their assets to invest in the market rather than do some hands-on trading on a day to day basis. As such, they open a position and hold on to it for months and even much longer.
If your personality type is more of a risk taker and you are able to handle a bigger load of stress, then you can become a day trader. This is the most typical image of a trader who is engaged in trading on a daily basis. In the style of day trading, positions are opened and closed within the same day.
Scalping is like day trading on steroids. To become a scalper, you need to have a risk taker personality type and be able to think clearly under a lot of pressure. Scalping involved opening and closing positions in the shortest time frame possible – ranging from seconds to minutes only.
This type of trader would rely heavily on fundamental analysis. As such, the trader would be more focused on analyzing data from the big picture economy, which would in turn include economic indicators such as GDP, CPI, CCI, and the rest. These factors can directly and indirectly impact the market in the short term and especially in the long term.
The opposite side of a fundamental trader is a technical trader. This type of trader would conversely focus on technical analysis and use technical indicators to analyze the past behavior of the market and price movements in order to obtain accurate predictions about the upcoming movements in the market.
Just like there are so many different types of people in the world there are so many different types of traders in the market. The variations can be divided upon many lines, including differences in personality, and also approach to trading, initial equity, how long you want to keep your position open, how frequent you want to trade, and how much you are willing to risk, among others.