What is your profile as a forex trader? Have you ever thought of thinking which trading profile best suits you? A trading profile that matches your personality can make the difference between success and failure. Forex traders have different profiles. Your trading profile depends on the time frame you trade. Are you a short term trader like a day trader or a swing trader? Are you a long term trader like a position trader? So your time horizon can range from a very short term to a very long term. Find the time horizon that best suits you and bring all your trade plan considerations in line with it.
What are the trading characteristics that distinguish a good trader from a bad trader? Do good traders share common characteristics? Do bad traders have something in common? Yes, good traders share common characteristics. Bad traders share many things in common. Discovering the bad traits in you early is going to help you get a firm toehold and develop into a good trader in the long haul. So determining your trader profile early on in your trading career is very important for your success as a forex trader.
Jumping from one trading style to another will make you move in circles. You need to find the trading profile that best matches your personality. Too many traders jump from one type of trade and profile to another quickly and often. Forex markets are enormous, complex and deep. Finding your right trading profile is essentially finding your own niche in the market. Once you know your profile, you can dig deeper for improvements.
You must be asking how you are going to determine your trading profile. So how you determine your trading profile? The primary considerations in determining a trading profile are: 1) How long on average do you expect to hold your positions? 2) How much profit you wish to achieve in each trade? 3) How much risk you are willing to take in each trade? These are just a few questions that you need to ask yourself in order to settle your trading profile.
Long term trading has advantages and disadvantages. Long term trading can be risky as well as beneficial. The longer you stay in the trade, the more you are at the risk of a sudden news release or announcement that can be bone jarring for your trade. At the same time, you should know this fact that the longer you hold a position, the more you can benefit from the developing trend.
Do you know what is Guerilla trading? Can you be a successful Guerilla trading? A Guerilla Forex Trader is looking for very short term profits something like 10-20 pips. Trading costs can become highly significant for a Guerilla Forex Trader as he/she may be in and out of the market frequently. So what are the most probable trader’s profiles? The answer to this question will lead you to one of the following profiles: 1) Guerilla, 2) Scalper, 3) Day Trader and 4) Position Trader.
If you are new to forex trading, you cannot and should not be a Guerilla trader. Now read it very carefully, a Guerilla is not a good fit for a new trader. This profile is best left to the professional forex traders with direct access to the interbank market and very low bid/ask spreads. A Guerilla Forex Trader might follow a 5 minute chart to follow the market, the 30 minute chart to determine the long term trend in the market and 1 minute chart to time trade entries and exits. There is too much noise on the 1 minute chart and it will be very difficult to make sense of that noise.
Trading cost is something you should worry from the very start of your trading career. Try to You can only be profitable in the long run if your trading cost is less than your profits. So if you are a new trader just starting to learn the ropes, you should avoid Guerilla trading profile. You will not be able to cover your trading cost with this profile.
Can you be a scalper? Yes, forex scalping is something that many of us do. Forex scalping is best suited to the time when the market is ranging. Scalper is a workable profile for a small retail trader. However, you should be able to view the overall trend of the market to gauge whether you are trading with or against the prevailing trend. A scalper is also a seeker of short term profits of the level of 25-50 pips. A scalper might use a 10 minute chart to follow the market, a 1 hour chart to determine the long term trend and the 5 minute chart to time the entries and exits for each trade.
Day trading is something that many people are successfully doing from the comfort of their homes. There are many people who now make a living from day trading. In day trading, you open a trade and close it before the end of the day. That means you do not keep it open overnight usually. Day trader is a good profile for a new trader. However, sometimes you might not want to close the trade at the end of the day as the trade is in profit and you are expecting more profits if you continue with the trade overnight. There is a rollover cost if you rollover your trades overnight. Be sure if you want to day trade, you know your broker policy on rollovers and the rollover cost for you. A Day trader is looking for larger profits something like 50-100 pips. A Day Trader might use a 15 minute chart to follow the market, a 4 hour chart to determine the long term trend and the 5 minute chart for making the entry and exit.
Position trading is long term like a few months to a year. A lot can happen in few months to a year. The whole world can go topsy turvy. The important question is can you make an investment for that long and survive looking at it for that long. Position trader is a risky and difficult profile for a part time or new trader. The longer you hold the position, the more you are at risk of getting the market surprises that no one can predict. A market surprise can be a sharp change in direction or volatility often occurring as the result of a major surprise announcement. A position trader is always for the lookout for big market moves that can get him/her 100-500 pips per trade. He/she might use a 1 hour chart to track the market, the 15 minute chart to time entries and exits and 1 day charts for trend determination.
Always try to maintain a risk/reward ratio of at most 1/3. This means the chances are 3 to 1 that you are going to make a winning trade. In other words, in the long run, you will have 3 winning trades for each losing trade. If you aim for a 1/3 risk/reward ratio, a Guerilla will risk 5-10 pips per trade, a scalper will risk 15-20 pips per trade, a day trader will risk 25-30 pips per trade and a position trader will risk 40-50 pips per trade. Each profile requires different scales of charts and time frames but also indicators and money management parameters.
Even if two trader s use the same charts and technical indicators they might interpret them differently. The differences in money management techniques and attitudes are much less. Good traders tend to share money management and attitude traits. So do bad traders. Do you want to become a good trader or a bad trader? Always keep in mind that in forex trading a 10 pips move up or down can easily occur within seconds or minutes very quickly without any reason or rhyme. No two traders can be exactly alike.
Hassam 