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Trading personality types

Forex traders come in many different shapes and sizes. There are male traders, female traders, fat traders, skinny traders, beautiful traders, ugly traders, slow traders, fast traders, professional traders, amateur traders, fur traders etc.

Each trader has their own personality, their own personal schedule, their own appetite for risk, their own pain threshold and their own bankroll.

Some traders might have several things in common, but most will be different. The point is each of you are unique. And depending on your personality, personal preferences, and situation, how you trade will be a driving factor in determining your success.

In order to figure out how you should trade, you must first uncover your own “trading personality.” Your trading personality will determine the trading style and method that’s compatible for you.

Trading is not like a t-shirt. There is no one-size-fits-all. There is no single plan for all traders.

Perform a self-assessment on your personality, behaviors, beliefs, and mindset. Do you consider yourself disciplined? Are you risk averse or a big risk taker? Are you indecisive or spontaneous? Are you patient or a explosive?

An excellent way to help you with your self-assessment is to keep a trading journal. It will help you to analyze your thought processes after the trade, and identify your strengths and weaknesses in your trading. Understanding your personality is one thing, but understanding it while you trade is a totally different story. A trading journal allows you to review your wining and losing trades and pinpoint specific reasons on why you won or lose.

Now, before we get in to the different components of trading styles, let’s look at the profiles of a few traders, their trading personalities, and how it’s affected their lives outside of trading.

Trading Personality Types

The Position Trader

Position traders doesn’t sit in front of the computer all day. But they enjoy reading about the world’s economies and has a short list of countries which he keeps up with their economic data releases. Position trade means, when they enter a trade, the holding period is between a few weeks to a couple of months and only trades several times a year. Often, at the end of the year, they can recount the number of trades on one hand.

In order to do this, they use discretionary fundamental analysis. This means they take an hour or two every week to see what the economic reports (like GDP, employment data, CPI, etc.) are indicating to them. They then makes a decision on which way to trade, but does not automatically go with the signals. Because Position trades are longer term in nature, profit targets are huge – but so are stop losses! Their stop losses usually range between 100-500 pips while profit targets range from 500-1,000 pips or more. The trades have a big reward-to-risk ratio, which allows them to minimize the losses when they’re wrong, but hit the jackpot when they’re right.

Position traders enjoy trading this way because it allows them to have a life. With their current work and family obligations, they clearly don’t have the time to devote to being a day trader. Their trading personality don’t require them to make a decision in the heat of the moment and allows them to look for longer-term trends. As a position trader, they can manage a busy career too.

The Swing Trader

Swing traders prefer to hold trades in a shorter time frame than the Position Trader. They attempt to predict the short-term fluctuation in a currency pair’s price, and are willing to hold his trades open for more than a day, or even a few days, to give the price movements some time and capture additional momentum. On some trades they will generally be in a position from several days to even a week.

Swing traders dedicate an hour each day and/or evening to go over the market. The first half of the hour is spent reading the major economic news of the day and what news reports are coming out within the next 24 hours. Based on what’s going on globally, they determine whether the currencies they are watching will see volatility or not. Since they only watch two or three pairs at the most, it doesn’t take them long to read the major reports of the day.

After the Swing traders have finished reading the economic news and reports, they determine if the market will trend or range for the next few days, or even weeks. They pull up their charts and use technical analysis to find good entry and exit points. Their tools to find support and resistance include Fibonacci retracements, channels, trend lines, moving averages, etc. They then sets limit orders with stops and profit target levels, so it’s all practically automated when they enter and exit a trade.

Swing traders have been pretty successful. They are able to mentally weather the daily swings a swing trader has to go through. Their losses have been limited to 50–100 pips, while their gains have ranged between 100–500 pips.

Swing traders usually check their position once or twice a day just to make sure unforeseen events haven’t significantly affected their positions, and the rest of their day is spent doing whatever they want, whether it’s working, hanging with friends, or browsing internet.

The Day Trader

Day Traders is extremely impatient and feel they always “needs to be doing something.” Their trading style consists of trade positions that are opened and closed in one day or less. Some days, they may only trade once. Other days, they may trade several times before the market closes. The bottom line is that they exit all positions by market close (3 p.m. EST) or when a session, such as the European or Asian session, ends. Day Traders feel the need to be in the market at all times because they are afraid of missing a good trade. They are also risk averse and are scared of losing too much per trade, so they use small stop losses.

Day Traders spent years developing a consistent method of taking profits out of the market. Their account is big enough where they can quit their job, and watch the market full time now. While they are aware of news releases on any given day, day Traders mainly relies on technical analysis when trading. They have been using technical tools such as oscillators (MACD, RSI, Stochastic) and moving averages, which automatically signal them to enter and exit high probability trades. They just follow the signals.

Most days, Day Traders go for 10–50 pips or more while limiting their losses to 20–30 pips, but occasionally they will scalp the market. Scalping is a method where they trade larger lots and take less pips (usually 10-20) out of the market. Most of their scalp trades last for a few minutes or even seconds!

The Day trading and scalping methods allows them to make one to several trades per day and satisfy that “need to be doing something.” Their confidence in the system allows them to stay with the plan and stick with the rules. They do not have to decide whether or not to enter a trade – the charts do it for them! However, Day traders knows that their system is not perfect. They may lose a little less than half of their trades, but their average win is almost twice thier average loss. Over the long run they have consistently profited from the market. They are now able to work from home, be their own boss and take time off to travel whenever they choose.

What Kind of Trader Are You?

Well, one of the first questions to ask is, “how much time do you have to trade currencies and how long can you comfortably be in a position?”

We can identify different trading personalities by timeframe. Take a look at these different styles and see which one may fit you.

• Scalping – Scalpers are very short-term traders, usually in and out of trades within seconds. Most forex brokers discourage this type of trading. It’s also extremely dangerous due the high number of lots required to make a decent profit off a couple pips. Not for the faint of heart or shallow pockets.

• Day traders – Day traders open and close positions in the same trading session.

• Swing traders – Swing trading holds trades for days.

• Position trading – Long term position traders hold trades from weeks to months at a time.

Next question is, “how do you want to analyze the market and decide on which trades to take?”

• Technical Analysis – using charts and technical indicators to analyze the past price movements of a currency pair to possibly see where the price may go in the future.

• Fundamental Analysis – Watching and analyzing economic news reports and indicators such as GDP, CPI, Employment data, or any political news that may affect a country’s economy and their currency.

And finally are you a system trader, or are you a discretionary trader?

• System Trader – a system trader or mechanical trader tends to take to signals from system of technical indicators to automatically enter and exit trades. For instance, if the stochastic indicator shows that the currency pair is oversold, the system trader will automatically enter a buy on the currency pair.

• Discretionary trader – this trading style usually refers to traders who use both technical and fundamental analysis. A trader’s technical method may signal a possible trade entry, but their analysis of the fundamental landscape may show a different story on the same pair.

In short,

Succeeding in forex trading takes hard work, lots of time, and some blood, sweat and tears. New traders need to be realistic right from the start. Beginners should start small and constantly evaluate their profitable trades as well as their failures.

Like we said earlier, trading is not like buying a t-shirt. One size does not fit all. Before you can succeed in trading, you must spend time doing homework, learning your personal strengths and weaknesses, and assessing your personal schedule, trading capital and trading experience.

Take the time to answer these questions, and also look back at your trading journal to see how you fared in different trading situations. Only then will you be able to decide on a trading personality that’s compatible for you.