Popular FOREX Trading Profiles
A trader's profile is easily defined and identified by what chart time frame she does her primary analysis. This, in turn, determines what size profits she is attempting to garner and how much she will risk on a trade to gain that profit. Obviously, the greater the profit potential, the more one should be willing to risk to achieve it.
The GuerillaThe guerilla trader seldom stays in a position for more than a few minutes.
The guerilla may use tick charts, 1-minute, or 5-minute charts. Five minutes is a long time to a guerilla trader.
Below the guerilla are the high frequency (HF) and ultra-high-frequency (UHF) computer trading systems, which work mostly in seconds. The astute trader watching 1-minute charts can often see the actions of the HF and VHF traders. From 5-minutes and up, it is all but invisible. This style of trading is discussed in Computer Trading.
The ScalperOne level up from the guerilla is the scalper. A scalper may extend his profit horizons to perhaps 30 or even 50 pips in a volatile market. A scalper might trade a pair once or perhaps twice a session. Being a scalper is a reasonable space for the new trader. But, again, costs can be significant. The counterbalancing idea is that you cannot (usually!) lose too much money being in the market or exposed for only 30 minutes to an hour.
Tip: No matter how short-term you tradeâalways use stop-loss orders.
Scalpers will use 5-minute to 15-minute charts as their primary medium. Scalping is very popular at the retail FOREX level, especially with traders who have limited time to trade.
A definite advantage of scalping is that each trading session can be self-contained. I mention process further on. For the scalper, the issue of process is at least minimized. The time frame is so short that what happened before she begins trading is not as relevant as it is to the day trader or position trader. For those to whom this profile appeals, I discuss the "FireStarter" technique in Waltzing the Trade.
The Day TraderThe day trader seeks profits in the 50- to 200-pip range. Such a trader must often sit between multiple sessions or seek markets with high directional movement. By seeking larger profits, a day trader can afford to make quite a few losing trades, if none of them is large. The day trader only needs two or three successful trades a week to make the program effective. By staying longer in the market, day traders are exposed to more unforeseen circumstances and market-jarring news events or announcements. I am a day trader most of the time. It is a good profile for new traders, also, but it requires an adequate process to be fully effective.
The day trader typically works with 30-minute to 1-hour charts.
The Position TraderFew retail FOREX traders can afford the heat of staying over not only several sessions but several days in a market. Yes, you can make a killing as the EUR/USD goes from 1.2500 to 1.3500 in a month. You can also lose it all in a single trade. The exposure is enormous over such periods of time. If you perceive a longer-term trend, you can catch most of itâor perhaps even more by trading the intermediate swingsâas a day trader. This is certainly not a profile for the new trader.
I have met several new traders who are sure they want to capture only long-term profits and ride out the corrections along the way. Until you've seen a market move against you 200 or 300 pips and erode half or more of your profit it is impossible to say whether you will or will not be able to follow this strategy. Easy to say, difficult to do!
The day trader watches 4-hour and 1-day charts.
Every trader makes her own space and they overlap. With the number of traders involved in the currency markets at any given time, you can be assured there is someone watching every possible combination!
Table below shows the basic parameters for these trading spaces or profiles.
|Watch Time Frame||Profit Range|
|Guerilla||1-minute to 5-minute||10 pips to 25 pips|
|Scalper||5-minute to 15-minute||25 pips to 50 pips|
|Day Trader||30-minute to 1-hour||50 pips to 100 pips|
|Position Trader||4-hour to 1-day||200 pips to 500 pips|