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 Guerilla

The guerilla trader seldom stays in a position for more than a few minutes.
Making 10 to 20 pips from a trade is considered a good deal. Guerillas often trade the news and need low pip-spread even to survive. When you make 20 trades a session and seek only 10 to 20 pips profit, the spread costs add up quickly. I do not recommend that the new trader attempt the guerilla style of trading.

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 Scalper

One 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 trade—always 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 Trader

The 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 Trader

Few 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 it—or perhaps even more by trading the intermediate swings—as 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.

Trading Spaces

Watch Time FrameProfit Range
Guerilla1-minute to 5-minute10 pips to 25 pips
Scalper5-minute to 15-minute25 pips to 50 pips
Day Trader30-minute to 1-hour50 pips to 100 pips
Position Trader4-hour to 1-day200 pips to 500 pips
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

Posted in ...