Are there different types of traders?
Imagine the following situation: you are interested in a career as a Forex trader and want to become a professional in the field of automated currency trading. What steps would you take in the first place to ensure that your transactions generate stable income? If you have been considering such an option as testing various trading strategies for a while by the given moment, then this is the right direction for your business thinking, but first of all, you should decide what type of a trader you are. Probably, you are wondering how to understand your inclination towards one or another style of Forex trading.
Our today’s review will be devoted to a detailed analysis of the types of traders. With the help of this material, you will be able to delve deeper not only into automated Forex trading, but also to understand your own preferences regarding trading tactics in principle. Your potential success and the ability to grow professionally to the level of an expert in foreign exchange transactions directly depend on a number of significant factors that affect your entire trading activity in general. So, what background circumstances should you take into account when you trade in Forex?
The psychological characteristics of the human personality are such that beginners in foreign exchange trading often find themselves faced with a choice of polar opposite options. Someone trades in Forex with the utmost care, relying on a conscious and thoughtful approach to automated trading. Other traders rely on the power of their intuition and trade assets impulsively, surrendering to the power of emotions. Do you recognize yourself in any of the above portraits? Or none of the described Forex trading styles is close to you?
To come to more specific conclusions, we recommend that you familiarize yourself with the classification of trader types, since it is quite possible that you will find a model of behavior suitable for you in our selection. This typology will include division into types depending on various factors. Below you will see how traders can be classified according to their approach to trading, according to their behavioral characteristics and even according to their psychological properties. Trying to identify yourself with any type of trader can be an exciting challenge.
Types of traders by trading style.
Traders are divided into types depending on those automated Forex trading strategies that they consider the most preferable from the point of view of personal convenience and profitability. If you are in doubt about which type you should refer to yourself, then we advise you to first read about the nuances associated with each of them separately, and then ask yourself a question about the appropriateness and acceptability of a particular trading style for yourself. It is also possible that you will be able to finally understand this only in practice. So, we have before us the classification of traders by trading algorithms:
Classifications trading algorithms
- long-term (typology is given as the trading timeframe decreases);
- medium-term (counting on a shorter period of transactions);
- day algorithm (the feature is the completion of transactions before the end of the trading day);
- scalpers (trade on price movements and work on minute charts).
Long-term traders differ not only in a special Forex trading strategy, but also in a number of psychological aspects. Firstly, these are those people who can soberly and coldly calculate their actions, waiting for a favorable moment for making deals. For a long-term trader, the minimum duration of the timeframe (or timeframe in Russian) is one day. It is not uncommon for such a trader to hold positions open even for several months and then profit from the game on a long trend.
Medium-term traders represent the largest category of traders. Therefore, it is by no means surprising that it is mid-term traders who are the first to start testing automated Forex trading strategies. As a rule, they base their trading on periods from several hours to several days, while the timeframes of the charts can fluctuate between one and four hours. This group of traders is considered to be excellent analysts, ways to combine both fundamental and technical analysis methods in their automated Forex trading.
Day traders, as the name suggests, tend to open and close all of their trades within a single day. Traders of this type always try to avoid significant risks, for them the key condition is the need to carry out transactions in Forex before the night and on charts with a timeframe of no more than four hours. Long-term long-term planning cannot be called a strong point of day traders, people of this kind of mind want to make a profit as quickly as possible and without prejudice to the deposit. This category of traders is also quite popular on the Forex exchange.
And finally, we came to such a trader type as a scalper. Scalpers can have amazingly quick thinking, because it is important for them to successfully apply automated Forex trading strategies as quickly as possible. Scalpers base their actions on short-term price fluctuations and can enter into many deals in a short period of time. A notable feature of the scalper style is the number of transactions in Forex, since the quantity develops into quality, where a small profit from each transaction is then summed up and gives the scalper a tangible income.
Behavioral models of traders.
And although the global economy is most often subject to the predictable impact of cyclical phenomena, such as intermarket correlations, it is still impossible to predict for sure which driving force will prevail in the market at one time or another. Thus, any market produces opposite types of traders in behavior. A basic understanding of who you are dealing with when you open an order to buy or sell a currency will help you to correctly build your automated Forex trading strategy.
In addition, it is quite possible that you will also begin to be impressed by any behavioral model in Forex trading, so it will be useful to know what types of traders are divided according to their market sentiments, which dictate a certain line of economic behavior to them. So, the classification here is extremely short and simple: bulls that play on rising asset prices, and bears that do the opposite, that is, profit from a downtrend in the market. How do these two behaviors affect your automated trading?
The essence of bullish trading is that bull traders are in an advantageous position if the value of trading products increases. This strategy is quite aggressive, as it involves some kind of provocation, because bull traders often deliberately take actions that lead to an increase in prices for currencies, stocks and other assets. Bulls are speculators and resell assets that they bought in advance, hoping to get tangible profits from Forex trading. Is this trading strategy right for you?
Bears are the exact opposite of bulls. Their task is to sell assets for the purpose of their subsequent repurchase, but at a reduced price. The difference in the value of assets will be the profit for traders of this type. Naturally, such an automated Forex trading strategy is relevant mainly against the background of a downtrend. In this situation, bears take a stronger position than bulls, but it should be remembered that the division of traders into types depending on their behavioral model does not reflect the whole variety of trader types, since market trends change and here it is possible to make adjustments to the chosen trading strategies.
Psychology and trading: the main types in Forex.
Any trader should be flattered by the fact that a priori exchange trading is considered the lot of people with high IQs. It is likely that in one of the following types you will recognize yourself, or at least understand which psychological perception of automated trading strategies in Forex you are closer to. The inner world of a person is a unique space in which the action of exclusively intellectual knowledge prevails for someone, while for someone empirical experience is the leading one in making transactions.
Thus, in the context of psychology, Forex trading is distinguished by three main types of traders. Which of them would be more comfortable for you to rank yourself with, you have a chance to find out in practice when you start actively testing automated trading strategies. It is possible that over time you will experimentally test different approaches to trading in action, so dividing traders on such grounds as deliberation or impulsive behavior will be useful for you to better understand your own nature. So what are the psychological characteristics of traders?
The quickest to make decisions (and by no means always correct) can be called an instinctive trader. In different circumstances, this quality can bring both profit and loss, because the decision of an instinctive trader is always subject to his emotional state. That is, this type of trader does not engage in a deep and comprehensive analysis of trading strategies in Forex, but subordinates the conduct of transactions exclusively to his emotions. Good or bad – it is impossible to say unequivocally, but the profit of an instinctive trader will depend on chance and fleeting luck.
People with highly developed intuition form another group of traders who are called intuitive. It is easier for them to choose and test automated Forex trading strategies than the previous type, as they can predict the development of events and the movement of the trend based on their strong intuition. Of course, the risk of mistakes remains here, too, so the most flawless type of trader is the intellectual type. Such people are excellent at using analytical data, historical information about the state of the market and can trade Forex stably, predictably and with good profit.
Therefore, we leave the question of what type of trader you would consider yourself to be.