The Different Types of Forex Traders in The World - ForeXposed

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Sunday, October 8, 2017

The Different Types of Forex Traders in The World



The Different Types of Forex Traders in The World
Time Frame in Forex Trading 

Until this discussion, your ability to do analysis on market movements have been very good. You have been able to perform technical analysis with various indicators, even adding the Elliott or Fibonacci. We say, congratulations! At least you have learned to do forex trading using analysis, and not merely a chance.

On the forex platform, you will find various graphs displayed using a variety of different time frame. Sometimes using the D1 timeframe (daily) or sometimes using H1 (1 hour). What does it mean? Well, in trading, we often use the various graph for one currency pair where we trade. It is wise to trading with multiple time frames.

Using multiple time frames will help us to determine two things:

  • The ongoing long-term trends. 
  • The right time to do the Buy/Sell execution.

Both of the above is crucial in forex trading. Imagine if you do not know the ongoing long-term trends. And because the graph of 1 hour or 15 minutes is showing the downtrend, then we open a sell position. Whereas the trend, in the long run, shows prices are rising. Now, what will happen?

In a short period of time (a few hours ahead), when your technical analysis valid enough then maybe your position will be profit, but if not you are forced to hold back your position up to days. Because in the daily trend, the price direction is slowly positioning your profits turn into a loss. If you don't use a Stop Loss, then it is likely the Margin Call will happen. Up here, the big problem will come soon, including a social effects that arise as you experience a big loss.

Well, this is the importance of using multiple time frames in trading. The majority of traders using bigger time frame to determine long-term trends such as H4 (4 hours) or D1 (daily). To determine the uptake positions then you need a shorter time frame such as M15 (15 minutes) or H1 (1 hour). Well, the time frame used all depends on your trading style. Everyone has differing trading style. There are forex traders who open a position until up to days or even up to a month (this is called a Swing Trader). There are also traders that only in a matter of hours his position was already opened and closed many times. Let’s learn, one by one.


Swing Trader, Day Trader, and Scalper

As has been explained above that everyone has their trading cycle respectively. Some people, due to the limited of time, cannot see the price at any time, so choose to be more passive, such as Warren Buffet.
The Different Types of Forex Traders in The World
Warren Buffet
There are also some people who have the time and sufficient access, making it possible to monitor the price movement and try to take the maximum possible profit in the world of forex. As such, he tried to open a trading position daily.


Swing Trader

The Swing trader tends to hold his position up to days or months. Some even hold a position up to one year! A trader with a pattern like this tends to be waiting until the price is at the best position, then aiming to open a number of lots, and put a big enough profit target. Usually, they open a position only at the very extreme conditions, where prices have been very high or very low according to the history of the movement in the last few weeks. Because these conditions are not too frequent, so once they get the chance then the chased target is very big and well balanced with sufficient funds to withstand a price movement, because usually their specifies Stop Loss point is also larger. That is why the Swing Trader is often starting trading with large capital, about $3000 for a mini trading.

The Swing Trader more often use the Daily time frame or H4 to determine their long-term trend. For decision making to Buy or Sell, usually, they simply use graph H1 time frame only. The meaning of this, at a time when they were about to find a fitting moment to open a position, then they will open the Daily chart or H4 chart. Then they determine whether the trend is going on in the 1D chart. If the trend indicates the situation is heading an uptrend, then they will simply look for a Buy and will not open a Sell position.

Next, they'll be looking for the right time to open a position. The trick is to wait for the H1 chart in the same direction with D1. This means, if D1 shows the direction of the trend then the Swinger Traders would wait until the H1 is also showing the same directions. After that, they will do Buy actions. When they take the position then usually they will determine their profit target. The traders by type like this will pursue profit target above 100 points, so it takes a few days to a few weeks to get there.
The Different Types of Forex Traders in The World

Another thing you need to know is the Swing Traders even not hesitate to do counter-trend action just to take the opening position. For example, when the prices had already reached its saturation (e.g. overbought) then the Swinger Traders is not afraid to take a Sell positions, though the downtrend is not over yet. Their assumption is for the sake of saving time, because generally, they do not like to monitor the graphs simultaneously. That's why, they have enough capital to withstand a large price movement, thus assuming the price is no longer will move down, though at the moment still being in the ongoing uptrend.

The advantages of trading in this way is easier to analyze. Keep in mind that the greater the time frame that we use it will be easier for us to predict the price movement. Conversely, the smaller the time frame being used it will be increasingly difficult for us to predict the price movement correctly. This is because on the smaller time frame the graph is more often jagged (whipsaw) making it difficult to read the main trend.

Other conveniences are on the side of the psychological pressure. Due to the Swinger Traders using a bigger time frame, then they usually do not need to monitor the movement of the charts on every hour or every minute. Is enough only once in a day is not a problem. As a result, they will be more comfortable psychologically and escape from the pressures of the market at any price movement. Well the happier life, isn't it? And for the same reason, they usually can perform their daily activities in addition to trading.

The disadvantage? Of course, there is! The most fundamental flaws in forex trading with swing pattern is on the capital issue. You can not do swing trading only with $500 capital! Due to the Stop Loss used is wide enough, then they usually require considerable capital for forex trading, at least about $2000. It was also very minimal. Not to mention if they are playing not only with 1 lot for one opening position, then the capital that came up several times, starting $4000, even up to tens of thousands of dollars.

The second issue in swing trading is on a chance. Often the Swinger cannot open position while other types of traders such as Day Trader or Scalper can make the profit on the various price movements. The cause is, the opportunity for Swinger Traders is much less than the another type. It is because they have to wait for the price to go to the extreme point to open the position. When the price is playing on middle line then they can't-do anything other than wait. A tedious job!


Day Traders

Is the trader with daily types. Usually, this type of trader is open the position and close the position on the same day. The longest range is just a few days and very rarely passing a week. That is, as much as possible they will close their positions before the beginning of the next week starts.

The Day Traders usually use H4 or H1 time frame as a determinant of the long-term trend. As for the day-to-day execution, they prefer to use the M15 time frame.

Due to the time frame and time short, they trading profit target is not too large. Just be in the range below 100 points. Usually, the most common are around 30-50 points. Because their profit target is not too big, they can do the opening position several times in one day. In fact, I once met a day traders who are trading up to 13 lots in one day, but the initial deposit he entered is just $500!! It belongs to a very active day traders.
The Different Types of Forex Traders in The World

There are many benefits to be gained when someone did a day trader. Especially on the initial deposit. A day trader can start only with a capital of $1000 only. In fact, they who adept with this trading style is able to develop funds to hundreds of percent in a few months, when they start with $500 only. Even so, it is not advised to start trading only with a capital of $500, due to the magnitude of the risk that may occur if you are a beginner. However, the capital is very important.

Other benefits when you trade with day trader pattern is on the multitude of opportunities that can be taken. Due to the profit target chased no more than 100 points. This opportunity can arise almost daily, in the various types of major currency pairs. If you're pretty clever, whatever the price is up or down, the day trader is able to get profit from there. The day trader not too focus on a long-term trend as a Swinger Traders. For them, every day is their trading times. By looking at the today movements, that's the market conditions that can be taken. That's why they use the time frame that is relatively shorter as M15 or M10.

Of course, there are disadvantages in trading with patterns like this. If a Swinger Traders advantages are usually easy in control the position and the price, this has become a constraint for a Day Traders. A day trader must be strong enough to monitor the price movement several times on a daily basis. If not, they can lose the chance in the opening position. This likely makes a day traders experiencing psychological distress arising from price changes from second to second. If you have opened a real account, you will understand what I mean. On a real account, the psychological point holds a very important role, far exceeding any pressure.

The other disadvantage is the privilege Day Traders, that is their degree of activity. The more active a person in opening the position then the risk is also going to be getting bigger. So instead of getting profit, a day trader who is not adept at reading charts frequently experienced loss in large enough quantities in a short time.


Scalper

Scalping is derived from the English language “scalp” which means “fleas”. Well, trading with the type of scalping was indeed more or less adhered to this term. Without downgrading the Scalper Traders, they often utilize the situation of price movement that was very small and there were no means for a Swinger Traders. For them, the advantage of 10-15 points on a day is enough already, what matters is its stability.

The intent of this; by taking advantage as small as that the Scalper holds that it is a lot easier than chasing gains 100 points in a single trade. Often, they also take the number of lots that are more bigger for one opening position compared to most traders. If with a capital of $2000, the  Swinger Traders open just as much as 2 lots in one transaction, the Scalper can open the position up to 5 times! What if there is a margin call? Well, the margin call point for them is their Stop Loss point! But instead, when profit by 10 points they earn, just imagine 10 x 5 = 50 lots. The same as a day trader, is not it? But, this time it's a lot easier because targeting 10 points only. Not to mention, due to the profit target is just 10 points, they can open a position many times, up to a dozen times in one day. Hmm ... how active they are!
The Different Types of Forex Traders in The World

A scalper usually uses a time frame of H1 and M5 in their trading. H1 is useful to determine the major trends that are going on, whereas M5 used as a determinant of execution.

For a forex scalper, the spread is extremely important for them. The scalper often looks for brokers with a very small spread. The smaller will be the better because for them the difference of 1 to 2 points is very important.

The advantages of trading with this style are the easy in getting the profit target that we pursue. The movement of the 10 points can even be reached when the markets are very-very quiet, and the London and Newyork stock exchange are closed! The liveliness of our opening position is certainly far bigger than a Day Trader, let alone Swinger Trader. Also, the capital needed is not too big. $1000 was more than enough. Even $500 is not the problem.

The disadvantages? Of course, there is. The main problem is determining the Stop Loss point to be taken. With the profit target only 10 points, so if we want to balance then the Stop Loss should be equal, i.e., 10 points. But the thing is the same as the target of 10 points which can be reached easily, then the Stop Loss limit of 10 points is also easy to hit.

If so, what if we set the SL by 30 points? Wouldn't it be so much easier to achieve a profit while the SL became much looser? Correct. But 3 times of profit compared to only 1 loss, everything is break-even.

Well, what if Scalping without SL? It is also no less difficult. Indeed it would be far easier to achieve profit. But just imagine, you have to wait for days because your position is negative but your profits only take 10 Points! Isn't that weird? Our risk is up to the level of the Margin Call, where almost all the funds are lost, but we take advantage just 10 points! It really doesn't make sense.

OK, it was a variety of trading methods used by traders in the world. It should be understood, that there is no one method of trading which was mentioned above better than other methods. Each method has its own successful people who have tried that method for years. But there are also losers.

The key is to find the right forex trading methods for yourself. Try to ask yourself, how much time and capital do you have? Whether you are busy in everyday work? If yes, then join the Swingers. Or if you're happy with an adventure, join the Scalpers. There is no problem at all. All of that fits with your personality, then it would be really useful.

To be noted, the use of multiple time frame will greatly help you in determining the conditions that are going on in the market. A simple key in determining the time frame are: Smaller time frame will always obey the larger time frame. It's important for you to understand. If you find your H1 chart showing the down direction, and the D1 chart showing the up direction, then it is good to wait until both are in the same direction. Or if you are forced to open position, then follow the larger time frame! Because in a matter of a few hours in the future, prices will indeed down, but within days the prices will keep going up and up!

This the ends of our technical lessons. At the next session, you will learn the so-called Fundamental Analysis. And don't forget to keep practicing on a demo account. See you in the next article.