There are many different types of traders across the world, each approaching the markets with a specific strategy to secure the most profit and best manage trade risk.
The key to a successful trading journey is to figure out which type of trader you are, or want to be, and what this particular style of investing would look like.
Of course, you could always take a trading test to better determine your specific trading type.
Nevertheless, this article will take you through the different types of traders and how they invest, to help you narrow down your own trading style.
Day trader
A highly popular type of trader across various financial markets, is the day trader. This style of trading could be considered the least complex among the others, merely due to the simplicity of how the process works.
The only defining aspect of day trading is that you must open and close all your trade positions in the space of the same day.
The number of trades you execute, or the particular markets you invest in, are all down to each trader. All you have to do is complete them before the trading day is up.
Being a day trader can help you manage your risk better. Since all positions are opened and closed in the same day period, you aren’t vulnerable to any overnight risk, where trades could suddenly move in an unfavourable direction.
Position trader
Position traders aim to take advantage of longer-lasting trends in the markets, and open their positions accordingly.
As a day trader, you will only open a few positions at one time, but you’d hold these positions for very long periods. This could span over several months, or sometimes even years.
Day traders need to identify any potential, long-term trends in the market, and then hook their positions onto the asset as soon as is necessary. Then, they can ride the trend to its furthest point, before closing at the most appropriate time.
The main benefit of position trading is that any successful trades have the potential to produce substantially large profits, which have amounted over the lengthy period.
Scalper trader
A scalper trader can be aptly described as the opposite of a position trader, who aims to profit from short-term changes in the markets.
With this style of trading, you would open a high volume of trades at one time, but only hold the positions for very short periods of time. This can be for a few minutes, or even seconds, if needed.
Each individual trade will likely produce only incremental profits – considering they’re successful trades – but it’s the accumulation of several of these trades over one period, which can end up producing a large collective profit.
Scalping trading can be beneficial, since it naturally helps you avoid the risk involved in long term trades. Since your positions are only open for a short time, any unsuccessful trades shouldn’t have enough time to produce substantial losses, as they’d be closed quickly.
Swing trader
The main goal of a swing trader is to profit from the sudden and significant changes that occur in the markets.
A price swing is when a particular asset’s price value ‘swings’ rapidly either up or down. This drastic rise or fall can happen in very short moments, but the change in value is often big enough to produce sufficient profits.
Swing traders need to constantly analyse the markets, as well as any factors which could impact price values, as they need to accurately identify any swings set to occur, so they can open their positions accordingly.
A main benefit of swing trading is that, with a successful trade, you can end up making a large profit in a very short period of time – due to the nature of the swings.
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Using the information in this guide, you’ve hopefully been brought closer to determining your own trading style, and are one step closer to developing a more successful approach to your investments.
