THERE are four main types of trader personality: the scalper, the day trader, the swing trader, and the position trader. The difference between each styles is based on the length of time that trades are held.
Aligning your trader personality with your goals, and personal trading style is essential to successful trading.
Once you are comfortable with a trading style, remain faithful to it. On the other hand, using a trading style that doesn’t match your personality can greatly hinder your chances of success.
One of the biggest mistakes new traders make is to change their trading style (or trading systems) at the first sign of trouble, as it may lead to a losing streak.
Here are the 4 Trader Personality Types
1. The Scalper Trader Personality
Scalping involves making trades that you keep open for a very short period of time, ranging from a few seconds to a few minutes.
The scalping trading style is ideal for those who don’t want to sit around waiting for an opportunity to trade or wait for the market to move after you have entered a position.
Scalping requires focusing on the market for long periods of time, in order to find opportunities.
Since scalping relies on a lot of small trades, opportunities must be constantly found and capitalized to keep a profitable portfolio.
2. The Day Trader Personality
Day traders seek to enter a trade and exit the trade on the same day.
There are various reasons for doing this. One is that you don’t have to worry about the trade when you leave your trading platform.
Some traders don’t like to leave their positions open overnight as there are risks associated with it.
You can use a stop loss to prevent losses, or keep the trade from going too far against you.
3. The Swing Trader Personality
Swing traders typically have a little more patience than scalpers and day traders.
They can stay anywhere from a few days to a few weeks.
Given the ups and downs that can happen to a trade over that length of time, a wider stop loss is required to stay in a trade, even if it goes against you.
4. The Position Trader Personality
The position trader has the most patience of all, as he can have trades open for months or even years. More patience is required if the position turns against you.
Due to the length of time, the trade is open, and even wider stop loss is required compared to typical swing trade.
Position traders are typically fundamental traders who don’t let market sentiment affect their trading decision.
Finding Your Trader Personality
Choosing a trading style requires the flexibility to know which trading style is not working for you.
It also requires consistency to stick with the right style, even when its performance lags.
Here’s how to discover your trader personality.
1. Identify your motivation
There’s a reason why you wanted to trade in the first place. This can be a key factor in determining the trader personality that best fits you
If your trade simply because it is something you really enjoy, it can help you build a steady income, or to get rich.
But either way, you have to make a commitment to be successful in it.
It’s worth thinking about what your goals are and where your strengths lie to find out which personality fits yours.
For example, if your goal is to build an income with minimum effort, scalping is not for you. That’s because a significant amount of time is spent monitoring the market for opportunities that only last a few seconds to a few minutes.
However, the position trader personality is usually able to hold a position for months and even years – but to hold a trade like this, you must have significant funds, and substantial knowledge to form an analysis of the long-term trade requirements.
2. How much can you afford to risk?
Risk can be a limiting factor when it comes to trading.
Position trading requires a big stop loss, and consequently a lot of margins to be able to keep the position open.
If money is no object for you, the next question is how much you are comfortable risking, and this, in turn, depends upon how much you can afford to lose.
3. What is your time schedule?
Different trading styles have different time requirements. It’s worth finding out what works for you.
There may be a certain level of time commitment that you are comfortable with, but there could be some level of divergence between your trading personality in terms of time commitment and your actual ability to spend the time –
Take, for example, w day trading and scalping, these require relatively short periods of time, so it may be a good option if your schedule is typically quite busy or fast-paced.
Finally, choosing the right trading style that suits your personality will give you a better chance of winning as a trader.
• Scalping is a rapid trading style best suited to traders who can make instant decisions.
• Day trading is for traders who prefer to start and complete a task on the same day.
• Swing trading is for those who are comfortable holding their trades overnight.
• Position trading is a long-term trading style for those with patience and confidence to hold onto their choices.