The 5 Types of Forex Traders
The 5 Types of Forex Traders
There are 5 types of Forex Traders. These traders are separated by their trading style, risk profile, and trading objectives.
The Day Trader
Marty Schwartz’s trading was at one time accounting for 10% of the daily volume on the S&P 500 futures contract. He is the author of “Pit-bull, Lessons from Wall St’s Champion Trader”.
To the uninitiated, the day trader may seem like a person of action. But they are just as comfortable stalking their trade as they are decisive when it comes time to execute. Typically surrounded by multiple screens, the day trader monitors dozens of inputs while waiting for a trade with an edge to appear.
Some trade rapidly, moving in and out of the market in a heartbeat, taking 5 pips here, 10 pips there. Others may be more serene, placing only one or two trades per session, carefully waiting for the optimal time to catch the day’s move. The day trader may be boisterous and rowdy, but they have learned to separate their ego from the trade.
What if the market doesn’t go for them? They either out or going back the other way. To the day trader, it’s all the same. What matters is whether they cut their losses short or let their profits run. Whether they are right or wrong is irrelevant. They may only win with half of their trades. But through superior risk management, they end each day well in the black.
The Technical Analysis Trader
William Delbert Gann was famous for his ability to forecast market moves using technical analysis.
The charts weave a compelling story to the technician. They know that technical patterns provide a window into the market’s soul and a snapshot of its psychology. It is through technical analysis that they surf the waves of market participants’ fear and greed. Be it Fibonacci, Elliot Wave, or Gann theory; the technical analyst has the tools to help them predict the market’s near-future. The skills to implement a winning trade are based on their ideas.
The technician can analyse both short and long-term moves. Some will combine their technical analysis with fundamentals, trading primarily when both are in alignment. Others trust the price. They trade first and seek reasons later.
The technician’s charts are brightly adorned with trend lines, moving averages, stochastics and MACD. But underneath it, all is a beautiful simplicity that guides them to trade with accuracy and aplomb.
The System Trader
Ed Seykota is a system trader beyond compare. He understands that trading is about psychology first and the system second.
The system trader is the god of the trading machines. Through a rigorous process of development and testing, the system trader has automated their trading strategies. Their computer essentially does the trading for them. A picture of discipline, the system trader, sits calmly through rough periods. They know that when the trends appear, their profits will be significant.
System traders are in a research war. Markets change, and as they do, systems need to adapt. System traders spend more time researching than trading. That is unless they are roaming the world, as the master system trader is prone to do. His machines afford him the luxury of free time.
The Macro Trader
Famous for predicting the Black Monday crash in 1987, the billionaire Paul Tudor Jones is now the head of the philanthropic Robin Hood Foundation. The Global Macro Whizz Kid is known for trading big market moves with skill and tenacity.
The best global Forex traders know that it’s hard work and discipline that has led to their success. They search tirelessly for opportunities in currencies, indexes, and commodities. Then, they work even harder to ensure the best risk/reward profile for their trade. They understand that ideas are only going to get them so far and that implementation is the key.
The best global macro traders (the true whizz kids) never have a losing year, profiting in all market types.
The Hedge Fund Trader
Ray Dalio is the founder of the world’s largest hedge fund, Bridgewater Associates. In 2012, Dalio appeared on the annual Time 100 list of the 100 most influential people in the world and is currently worth over $15.2 billion.
It takes a leader to build a successful hedge fund, but it takes true leadership to build a business based on its people. Hedge funds are experts in selecting traders who fit their criteria, be they mechanical, macro or quant.
First and foremost, they are risk managers, with each trader having their place in a greater risk management plan. Traders that are performing exceptionally well are allocated more funds, while allocations are cut to those that are not.
The hedge funds trader knows that their team can produce returns far greater than their individual parts’ sums.
On 31 August 2021, Evergrande announced that, barring major restructuring and negotiations with debtors, it would have trouble servicing its liabilities. The problem primarily lay with the Company’s lack of cash flow due to a cooling Chinese real estate market, coupled with its extremely high rate of leverage.
Think of it this way: Imagine there are 1 million public shares of Company XYZ. Each share is currently worth US $1,000. In this example, Company XYZ would have a market capitalisation of US$1 billion (share price x total number of shares). Company XYZ then proceeds to repurchase half the number of public shares via a share repurchase plan and removes them from general circulation (imagine that these shares are burnt and no longer exist). Consequently, there are now only 500,000 shares left to be traded or held by the public.
Silver got no love last week, suffering its worst week in thirteen weeks, and raking up a fourth straight month of losses. After losing US $1.35/t.oz between September 13 and September 18, the metal closed on Friday at US $22.38/t.oz. Before last week, Silver had not traded sub-US $22.50/t.oz for the entire 2021. One would have to rewind their charts to November 2020 to find Silver trading below US $22.50/t.oz.
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Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.
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