There are many strategies and approaches to trading the financial markets. The task of wading through the plethora of information to find a strategy that suits you can take time. A trader with a sharp mind who has free time would enjoy a shorter time frame approach. A trader holding down a full time job with other commitments would enjoy a longer term approach.
Although there are may strategies. There are 4 main types of trader which I describe further below:
A scalper is a trader who focuses on the lower time frame charts, usually between the 1 minute and the 15 minute.. The approach of a scalper is to enter and exit the market ‘scalping’ between 1 and 5 pips/points at a time. A scalper can be in and out of the market throughout the day and due to small profit targets can accumulate profit. The main disadvantage of scalping is the spread offered by the broker. The fact the spread is taken on every trade makes it difficult to turn a profit consistently.. A scalper will watch the charts throughout the day and trade while doing so across many financial instruments. With the introduction of mobile trading technology it is now much more easy to enter and exit the markets rapidly.
2. Day Trader
A day trader skims through the charts and look for entries on the 15 minute to 1 hour charts. The aim of a day trader is to catch the trend for the day. With the anticipation that price will move in their favour for the majority of a session. A session being either the Asian, European or US market open and close. A day trader does not sit in front of the charts all day, but will check their positions regularly.
3. Swing Trader
A swing trader looks for areas on a chart where price is likely to reverse or ‘swing’ in the opposite direction. It is picking a top or bottom in the market. A swing trader will watch the weekly, daily and 4 hr charts and look to enter before price reverses. This allows for a small stop to capitalise on a strong movement in price. A swing trader will make decisions in advance of a move and so is not required to check the charts every hour. A swing trader will likely hold their trades for days and in some cases weeks.
4. Position Trader
A position trader will enter a market with the view to holding that position long term. A position trader monitors the weekly and monthly charts. They also apply much more weight to fundamental analysis. For example if the US federal bank announce policy to raise interest rates over the next 12 months. A position trader will buy USD against many currencies with the aim of capitalising on a rise in price. A position trader will likely hold for weeks/months before closing a trade.
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