11:11 AM

In my last article I wrote about the expectation value and how trend followers, contrarians, scalpers or system traders each need an approach with a positive long term expectation value in order to trade profitably in the foreign exchange market .

Now let’s take a look at each of these individual groups of traders and investigate their approach.

Trader Types

An important aspect in the categorization of different trader types is of course the time frame a trader uses for his/her decision making. There are several names and descriptions for various trader groups but when taking into consideration the average time a trade is held we can differentiate between three categories:

• position traders (long term),
• swing traders (several days)
• day traders (intra-day)

Swing Trader

A so called swing trader would open a position and then hold it overnight, even for a couple of days in order to catch a larger market-“swing” while a position trader will hold his positions for a couple of weeks or even months in order to profit from long term trends. Position traders usually have deep pockets and do not get nervous even during periods of hefty drawdowns.

Intraday Trader

Intraday traders open and close their positions within the same day and rarely ever hold overnight positions. An intraday trader can be labeled “scalper ” if he or she trades on a very low timeframe such as the 1 minute or the 5 minute chart in order to profit from a comparatively small swing of a few pips only. These traders usually rely on a certain set of indicators for their decision making process and usually close positions very quickly with a small loss or a small profit.

Scalpers make a lot of trades per day and usually trade during the busiest times of the day. As a scalper you have to be able to make very quick decisions. If you are hesitating when entering or exiting a trade scalping is not for you.

Trend Follower

A so called “trend follower ” is – as the name says – trying to follow the dominating trend. An intraday trader which is following trends on a 30 min chart will try to buy in short term counter trend corrections on a lower time frame, let`s say the 5 min chart. The trader will make a profit if the dominating trend on the 30 min chart continues after the technical correction he or she bought or sold into is over.

Contrarian

A “contrarian ” or counter-trend trader – is trying to pick a short term bottom or top and profit from a technical correction within a dominating trend or might even be speculating on a trend reversal.  For his entry decisions a contrarian trader is usually trying to find solid support or resistance levels at which a prevailing trend might reverse. He or she then places limit orders in order to get a good fill near or at these levels. This approach is purely based on anticipation and is not really recommended for beginners.

System Trader

A system trader follows his own very specific trading system or trading systems. These trading systems can vary substantially and can be a combination of two moving averages which create a buy or sell signal when they cross or very complicated trading algorithms consisting of a dozen or more different variables.

What type of a trader are you? Feel free to briefly introduce your method in a few words as a comment to this article. Remember – there is no “right” or “wrong” strategy – you have to find out what works for you.

About the author:

Henry Philippson is an independent financial journalist. He has more than 15 years of experience in the world of financial markets. After working in the financial services industry in Switzerland and Malta he now lives in Munich, Germany.