April 23
Do you know the type of trader you are? It is important to know your trading style to select the suitable strategies and set the right expectations.
There are 5 types of traders which will be described to help you identify yourself, saving you from unnecessary frustration and losses.
An intraday trader trades really short-term, ranging from minutes to hours, always closing his/her position within the same trading day.
Such a trader bases his/her trades on news, technical analysis, economic data or events. If you intend to be trade intraday, you need to be glued to the screen, make decisions and respond in lightning speed.
Your profits tend to be small. The same can be said to your losses provided you have a sensible stop loss.
Prices do not go up in a straight line; they tend to move up in waves. A swing trader aims to catch each wave up by entering on the pullback. These swings usually last for days.
Swing traders tend to have larger losses and profits as compared to intraday traders. When they go long, they take profits after each upswing.
You might have heard of this adage – the trend is your friend. This is a key belief of all trend traders. They trade in the direction of the trend and exit when the trend changes, hence capturing large amounts of profits.
An uptrend consists of higher highs and higher lows while a downtrend consists of lower highs and lower lows. When this structure doesn’t hold, the trader will choose to close part of his position or exit altogether.
Trend traders tend to stay in their trades for a longer period of time, ranging from a week to a couple of years. They are exposed to higher fluctuation in their profit and loss statement, depending on the market’s volatility.
Mean reversion traders believe that prices would revert back to the mean (average) price level. For example, traders will buy stocks that are below a chosen moving average while selling them as prices return to that moving average.
This strategy works better with currencies. See how EUR/USD tends to move in an zig zag sideways manner compared to stock prices.
A fundamental trader looks at the potential and management of companies. Given that businesses require time for results to show, such a trader has a long term view of business.
He pays close attention to earnings, products and services, innovations, moats, management decisions and more.
Having described about the strategies and preference of the different types of traders, which one are you?
Don’t worry if you find that you resonate with more than one trading style.
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