Knowing your trader's personality is very important if you want to maintain a healthy, pleasant, and most importantly profitable lifestyle while working on Forex. People are different and what is good for one can be bad for others. Some trading methods and techniques will work for the certain kind of traders, but they will fail when you try to use them.
The most notable difference between various trading styles is the frequency of trading. Traders that like action and often "want to do something" perform better when they open several positions per day. Those who do not like the chaos of the daily trading and like to think a lot before doing something will enjoy the profit from a scarcer trading. There are four distinct types of trader personalities defined by the trading frequency:
- Position trader — mostly fundamental analysis driven positions that are opened very rarely — only few per month, often just about 10–20 positions per year. This style does not require constant market monitoring and can be recommended for busy people.
- Swing trader — trades more often than a position trader, holding his orders open for days and weeks. Targets and stops are lower than those with position trading, but there are many trades per year. This is not a day trading, but neither it is long-term trading.
- Day trader — one of the most popular types of traders. They trade every day, opening several positions and holding them for a few hours to a day. This style requires a lot of market monitoring and will probably fit only full-time Forex traders.
- Scalper — this is the most risky and dangerous trading style. Scalping involves holding a position open just for a few seconds or minutes to gain a small profit from each deal. There are dozens of trades each day with scalping. Many Forex brokers prohibit scalping. Another problem with scalping is that a major part of the scalper's profit is eaten by the broker's spread.
There some other parameters that can be different for various traders, but the main trading style is the basic difference. In general, a trader who is good with position trading should not venture into day trading to remain successful. Try to find out your style as soon as possible and stick to it.