There are several things that separate the average traders from the great traders—guts, intelligence, instincts, and, most importantly, timing. Just as there are many types of traders, there is an equal number of different time frames that assist traders in developing their ideas and executing their strategies. At the same time, timing also helps market warriors take several things that are outside of a trader’s control into account. Some of these items include position leveraging, nuances of different currency pairs, and the effects of scheduled and unscheduled news releases in the market. As a result, timing is always a major consideration when participating in the foreign exchange world, and is a crucial factor that is almost always ignored by novice traders.
Common Trader Time-Frames
In the grander scheme of things, there are plenty of names and designations that traders go by. But when taking time into consideration, traders and strategies tend to fall into three broader and more common categories: day trader, swing trader and position trader.
The Day Trader
The day trader seems to be the most appealing of all the common types of traders. The day trader trades for the day, i.e., the day trader does not hold a position for long. Day traders often avoid holding anything after the session close and will trade in a high-volume fashion.
You may have heard us talking about ‘going for our day’s money’. This is what we are doing in our Live Trading Room from 7-9am. If we can be in and out of our trades within minutes and make a good income, then it’s perfect.
On a typical day, this short-term trader will generally aim for a quick turnover rate on one or more trades, anywhere from 10- to 100-times the normal transaction size. This is in order to capture more profit from a rather small swing. As a result, traders who work in proprietary shops in this fashion will tend to use shorter time-frame charts, using one-, five-, or 15-minute periods. In addition, day traders tend to rely more on technical trading patterns and volatile pairs to make their profits. Although a long-term fundamental bias can be helpful, these professionals are looking for opportunities in the short term.
One such currency pair is the British Pound/Japanese Yen (GBPJPY) as shown in Figure 1, above. This pair is considered to be extremely volatile, and is great for short-term traders, as average hourly ranges can be as high as 100 pips. This fact overshadows the 10- to 20-pip ranges in slower moving currency pairs like the Euro/U.S. Dollar (EURUSD) or Euro/British Pound (EURGBP).
The Swing Trader
Taking advantage of a longer time frame, the swing trader will sometimes hold positions for a couple of hours – maybe even days or longer – in order to call a turn in the market. Unlike a day trader, the swing trader is looking to profit from an entry into the market, hoping the change in direction will help his or her position. In this respect, timing is more important in a swing trader’s strategy compared to a day trader. However, both traders share the same preference for technical over fundamental analysis.
A savvy swing trade will likely take place in a more liquid currency pair like the British Pound/U.S. Dollar (GBPUSD). A swing trader would be able to capitalize on the double bottom that followed a precipitous drop in the GBP/USD currency pair. The entry would be placed on a test of support, helping the swing trader to capitalize on a shift in directional trend, netting a two-day profit of 1,400 pips.
Swing trading is popular with traders who still hold a job whilst they’re trading, so is usually the first type of trader that many of our students find themselves.
The Position Trader
Usually the longest time frame of the three, the position trader differs mainly in his or her perspective of the market. Instead of monitoring short-term market movements like the day and swing style, these traders tend to look at a longer term plan. Position strategies span days, weeks, months or even years. As a result, traders will look at technical formations but will more than likely adhere strictly to longer term fundamental models and opportunities. These FX portfolio managers will analyse and consider economic models, governmental decisions and interest rates to make trading decisions. The wide array of considerations will place the position trade in any of the major currencies that are considered liquid. This includes many of the G7 currencies as well as the emerging market favourites.
So which type of trader are you? Do you trade on the side whilst working, or are you trading with smaller time-frames? Once you’ve established which type of trader you are, you can find the right strategy for your personality and your goals. Read more about the best strategies for different types of traders here.
Lee is qualified at The Society of Technical Analysts, having passed his MSTA and CFTe with flying colours. To see Lee and our coaches use technical analysis, you can access our Live Trading Room 5 days a week. If you’re looking to step into the world of online trading, we’d like to help. We offer both courses and mentoring opportunities to help you trade with skill and confidence. Come along to our free Learn to Trade Live one-day course to really get your foot in the door! See here for more details and to find a date near you.
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