Trading can be done across a number of different timeframes, so it is important to ask yourself this question: what kind of trader am I? Am I an intraday trader, a swing trader, or a positional trader? Each trading style is completely distinct in terms of the timeframes involved in holding trades. Some intraday traders want to make sure that they have opened and closed their positions within a day. By contrast, swing traders can hold their positions for a couple of weeks, while position traders can hold their trades for months and even years. So, what type of trader are you? This article will help you identify some of the key characteristics of each trader to help you evaluate which type of trading will best suit your personality, availability, and resource.
1. Intraday Trading
Intraday traders are the most active type of traders. Although open twenty-four hours a day, the FX markets are divided into three key sessions: the Asian, the European, and the American session. Each of these has its own characteristics which become important in terms of intraday trading. The most obvious issue is that the Asian session tends to have narrower ranges compared to the American and European sessions; however, there are other less obvious nuances too. The overlapping time when the European traders go for lunch as their American counterparts arrive at their desks can see position squaring and earlier moves reverse into a temporary lull. The best time to be available for intraday trading would be during the London and US session overlap. So, ideally, that would be a working day from 0800 GMT to 1700 GMT. Have a look at the chart below to see the breakdown of the key financial times. The time zone you live in may affect your availability for trading these sessions.
Intraday traders need to carefully follow breaking news. So, ideally, you will need access to a news feed, and you will need to use data feed services such as Ransquawk or Livesquawk which broadcast key data and market-moving information. This is a cost that should be factored into your business. You will also need to be available during key market hours, so this is a full-time occupation and would not suit someone who was working a full-time job elsewhere. Intraday traders will use tight stops of about 35-50% of the Average True Range and look to targets that can be achieved within just one day.
2. Swing trading
Swing traders typically hold trades for a few days to a couple of weeks. Swing trading will mean that you will need to be following closely along with fundamental issues affecting central banks. What is the latest monetary policy out of the major central banks? When is the next rate statement? What are the market expectations regarding the latest data points? Swing traders know the broader market drivers, have larger stops than intraday traders, and are looking for larger moves. So, this would suit someone who enjoys research and could be ideal for someone that wants to combine a full-time job with trading. A critical component will involve reading market analysis and reports in order to understand the critical drivers and concerns for each of the central banks.
3. Position trading
Position traders can hold positions for months and even years. A positional trader will develop a constructive outlook for a central bank’s future guidance of currency direction. Their stops will be hundreds of points and they will be targeting many hundreds of points too. These traders will be filtering out the majority of the short-term ‘noise’ of the markets and only taking data points as they form part of the wider macro picture. As with swing traders, longer-term research will form a key component to this trader’s arsenal with considerable time spent on ensuring the fundamental outlook is continuing in the desired direction of the trade. This would suit someone who has limited availability for active trading, but can research central bank outlooks and is happy to wait months and years for their positions to play out.
4. Why choose?
The other type of trader is one who will trade a combination of the following styles recognising the different approaches and position sizes needed for each one. One of the hazards of this approach would be confusion, especially if you are trying to maintain three different timescales in your head. For example, you have one open intraday trade and one open swing trade. In this situation, it could be tempting to meddle with your open swing trade because news you heard on the squawk is causing you to react too quickly. In order to combat this problem, some traders will have different accounts for each approach in order to help avoid confusion with multiple open positions. This can ensure you don’t react too quickly to a squawk as you get caught up in the natural day-to-day drama of the markets.