- Short-term scalping, intra-day, swing, position, automated are the five major types of trading
- According to Jack Schwager, author of Market Wizards, successful traders usually match one of the five types of trading with their personality type
- Traders who choose a trading method that is contrary to their personality have difficulty sticky to their trading plan
Traders come from many different backgrounds, cultures, and have different personalities. People bring their beliefs and behavioral patterns to the market. These personality traits can sometimes be a great asset and benefit with certain types of trading. However, in other types of trading, certain personality traits can hold back a trader. So it is very important for the trader to remember the Latin phrase “Temet Nosce” Know Thyself. By matching their personality with the appropriate trading style, they are more likely to stick with a trading plan because it matches the natural decision making process that they do every day.
On the other hand, if a trader chooses a type of trading that is contrary to their behavior, they will more than likely experience stress, frustration, and failure. This applies to other professions and is not confined to trading. Think of a person who yearns to be a photographer, but is pressured by parents to join the family business. This person may not be suited for this profession and not excel at it.
The great thing about FOREX trading is that there is a type of trading to go with your personality. If you are an analytical person who needs lots of information and time to make a decision, you may be fascinated and attracted by the quick action and potentially quick profits of short-term scalping. However, you may discover that it is uncomfortable to make quick decisions or to take a signal from a setup because it is not natural for you to act so quickly. This can be a recipe for disaster because when analytical traders finally decide to enter a trade, it is too late as the profit windows are small and close quickly.
Analytical traders will then not exit the trade quickly for a loss because it is unnatural for them to make a decision without having more information and more time. These are two commodities in short supply for scalpers. Therefore losses compound quickly and frustration sets in.
On the other hand, the swing trading or position trading style may be more suited to analytical traders. Since these trades can last over a span of several days or weeks, analytical traders have much more time to prepare for trade and are reluctant to take the quick profit. The process of reviewing economic reports, news releases, trade balance numbers, and technical like trend direction, support and resistance levels is enjoyable and is suited to the thinking analytical person.
Swing trading entries are not as time dependent as it is for scalping. Swing trading is a trend following approach that can lead to profits in hundreds of pips. Analytical traders will be suited to this type of trading because they have time to incorporate lots of data before making a decision. They also can reap large profits from a trend following approach.
Though this approach may be a good fit for the thinker or analytical trader, swing trading may not be for active and driving personalities. In part II, we will discuss the types of trading that active and driving personalities may be best suited.
--- Written by Gregory McLeod, Trading Instructor
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Follow me on Twitter @gregmcleodtradr.This article showed you how swing trading fits traders whose personality tends to be more analytical. If you are brand new to Forex trading or need a review, enroll now in a free New to FX trading course. A short 20-minute review of the basicsmay be all you need to get your trading back on track!