There are many different types of trader - from the bold to the more cautious. Your trader personality not only depends on personal characteristics (Are you confident day to day? Are you wary of risk taking in your general life?) but also your trading habits: when you trade, and how you trade.
Aligning your trader personality with your goals and personal trading style is essential to successful trading. If your trading style is incompatible with your risk appetite, time commitments or motivations, it can have a severely negative effect on your trading. Analyse your motivating factors, risk tolerance and schedule to decide what trader personality aligns with your character and your trading goals.
Discover the different trading types here - and how to assess what your trader personality is!
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4 Trader Personality Types
There are four main types of trader personality: the scalper, the day trader, the swing trader, and the position trader.
Each of these trading strategies is defined by the length of time that positions are typically held. This length of time also has implications for risk tolerance and time commitment. See which trader personality is most like you here...
1. The Scalper Trader Personality
Scalping involves making trades that you keep open for a very short period of time, ranging from a few seconds to a few minutes. The scalping trading style is an ideal fit for those traders who don’t want to sit around waiting for an opportunity to trade, or waiting for the market to move after you have entered a position. Scalping requires complete focus on the market for long periods of time in order to find these opportunities. Since scalping relies on a lot of small trades, opportunities must be constantly found and capitalized upon in order to keep a profitable portfolio.
2. The Day Trader Personality
Day traders seek to enter a trade and exit the trade on the same day. There are various reasons for doing this. One reason is so you don't have to worry about the trade when you leave your trading terminal software. Some traders simply don't want to leave open positions overnight. There are fees associated with doing so and there is overnight risk associated with leaving a trade open that you are not constantly monitoring. You can use a stop loss to keep overnight losses from going too far against you, but day traders strive to avoid the session close as a matter of principle. There is also weekend risk as currencies can encounter dramatic fundamentals over the weekend and gap up or down when the market opens.
3. The Swing Trader Personality
Swing traders typically have a little more patience than scalpers and day traders. Swing trades can last anywhere from a few days to a few weeks. Given the ups and downs that can happen to a trade over that length of time, a wider stop loss is required as well as the mettle needed to stay in a trade even when it’s turning against you.
4. The Position Trader Personality
The position trader has the most patience of all the trader personalities mentioned here. He or she can have trades open for months or even years. Due to the length of time the trade is open, an even wider stop loss is required than for a typical swing trade. More patience is also required if the position turns against you. Position traders are typically fundamental traders who don’t let market sentiment affect their trading decision.
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3 Steps to Find Your Trader Personality
Determining your own personal trader personality requires a good degree of self-reflection. Using a trading style that doesn’t match your personality can greatly hinder your chances of trading success. It can be tempting to jump right in and begin trading as soon as possible.
When we do this without considering how or why we should do the things we do, we lose a certain edge that we get when our personality and trading style align. Here’s how to discover your trader personality...
1. Identify your motivation as a forex trader
There’s a reason why you wanted to be a forex trader in the first place. Identifying it can be a key factor in determining the trader personality that best fits you. You can be in it simply for the excitement of doing something you really enjoy or you could be in it to build a steady income - or your goal could be to get rich. But either way, you will have to be serious and make a commitment if you are going to be successful. It’s worth thinking about what your goals are and where your strengths lie to find out which personality fits yours.
This can help you to determine which trader personality suits you most. If your goal is to build an income or get rich with minimum effort, scalping is not for you. A significant amount of time will be spent monitoring the market for many opportunities that only last from a few seconds to a few minutes. The position trader personality is able to hold a position for months and even years - but to hold a trade like this you need both significant funds and substantial knowledge of fundamental analysis to be able to form the long-term analysis that such a long-term trade requires.
2. How much can you afford to risk?
Risk can be a limiting factor when it comes to trading in the forex market. Position trading requires a large stop loss, and consequently a lot of margin, to be able to keep the position open. If money is no object for you, another question must be how much you are comfortable risking. How much you are willing to risk is often very much dependent upon how much you can afford to risk, however.
Position trading requires you to put the most capital at risk in order to maintain a wide stop loss. The amount of capital at risk decreases as the time frame of the trade decreases, as the volatility of the currency pair increases the longer the position is open.
3. What is your schedule like?
Different trading styles have different time requirements. There may be a certain level of time commitment that you are comfortable with, but which simply does not fit into your lifestyle or professional commitments. So, there could be some level of divergence between your trading personality in terms of time commitment and your actual ability to spend the time - so it’s worth investigating what works for you. For example, with day trading and scalping, these require relatively short periods of time, so might be an option if your schedule is typically quite busy or fast-paced.
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