What kind of trader are you?
Whatever your current experience level trading the Forex Markets, you are required to have a well laid out plan if you want to become successful in this business.
A trading plan will allow you to remove a big amount of emotions and psychological stress from your trading.
When you have a sound plan, you’ll start entering trades with far more confidence, a lot of guesswork from your trading decisions will be removed and you will be more focused and looking for very specific setups instead of randomly acting by gut or intuition.
You will be able to measure your results with far more accuracy, since a trading plan would give you the ability to pinpoint the errors you incurred in your trading decissions. Which, in time will help you to gradually improve your everyday results.
The first step in defining a plan is to know what would be your trading style
Throughout my personal trading journey, I went from being a scalper to a day trader to a swing trader. Currently I find myself much better trading a couple of trades a week. I have time for other things, like writing this blog, my psychology is much easier to control, and I can focus on finding the best and simplest set-ups. I can travel and not be worried about being glued to the screen for 8 hours a day watching every tiny move the market has.
I have a perfectly laid out routine and plan that is easy to follow for me and my personal situation.
In order to define your trading style you will have to analyze your current lifestyle, the available time you have for trading, the amount of money you control in your account and also how your psychology reacts in different situations.
Although I am currently Swing Trading, it’s true also that scalp traders could make in a day the amount of pips I make in a week or more. So, yes there are pros and cons for each trading styles. You must learn them and be aware of what you can expect from each of them.
Define your trading style:
- You will keep positions opened for a very long time: months to years. In this category you find billion-dollar traders like George Soros and also big banks or institutions; they normally take a huge bet in one direction and stick to it for a long time making many times their original investment. Your trades will have monster amounts of pips maybe 2,000, 5,000, 10,000 or more. You’ll enter a trade maybe 2 – 5 times a year. This type of trading can be very profitable, however small retail traders don’t usually go this way because it’s more like a passive investment. It also needs a bigger account to profit from in a reasonable way.
- You will keep your position open from a few days to a few weeks. You will have maybe 1 – 2 trades a week. This is a very good trading style if you have a day job or if you have trouble controlling your emotions when watching the markets all the time. You will be looking for 100 – 500 pips in average per trade. This is my favorite trading style, since it gives me a lot of flexibility. You will be able to take your time to look for great set-ups and most of the market noise and randomness will be removed.
- Most day traders will open a trade or two and let them run for a session or even two some times. If you are in this category you will have to make time to actively monitor the session you are trading. You will have to become an expert in how the sessions have different patterns, when the volatility spikes are, etc. You will normally be looking for 40 – 100 pips from every trade. Your psychology will be put constantly to test here, and you will have to learn to control your emotions against fear, greed but also against boringness, many day traders start entering faulty or less than ideal trades when the markets are slow, since they become bored of watching the screen for several hours without finding any setups. When I was day trading I had hard times every time the market was not sending me any goodtrade set ups for the entire day. I’d tend to enter less than ideal trades to feel like I was “doing something”, which proved disastrous to my performance.
- You will be opening and closing trades that could last from a few minutes to a few hours. You will normally trade into a single session (maybe US session or UK session). You will be making anywhere from 5 to 20 or more trades a day. You will be looking for 10 to 20 or even 40 pips in each trade. Here you will have a hard time controlling your emotions. Your account will be very volatile and, if you are planning to scalp, I’ll recommend you really dominate your strategy in demo before even trying to trade a small account. Another consideration would be your broker. If you trade with an expensive broker, most of your money will go to pay trading fees and spreads. A fast dedicated computer and the best possible internet connection are also factors that will impact your performance when scalping.
- This is a very specific trading style that can be quite profitable. I have never been good trading the news, however I know quite a few traders that can make a good amount of money trading them. The great benefit here is that you simply have to program your week by looking at the important events that will come, since the volatility will be there at the exact time for you to trade it. You will not have to spend countless hours looking at the charts. Simply see what the decision was against the expectations the market had and trade that. You could make anywhere from 20 pips to 200 per trade, depending on the volatility of the market reactions from the news. If you want to become a good news trader you will have to be interested in knowing about rate hikes, dovish and hawkish outlooks, GDP’s and many other economical jargon words.
As you can see from this blog post, there is not ONE single way to trade. You have to understand how your own situation, psychology and expectations are to find your perfect trading style.
If you are just starting to trade and you don’t really know what trading style suits you best, I’ll recommend you start trying each of them with your demo account. In my book The Black Book of Forex Trading, you will find some strategies that are very simple to understand so you can get started with different trading styles and test for your self what works better for your personality and lifestyle.
I always thought I’d be a scalper but life put me, at least for now, trading Swing Style. So, who knows? maybe you’ll find a few surprises about yourself too.