What Type of Trader are You?

We have come a long way to understand what spread betting really is and how it works as a derivative product. But now comes the part of the course where you ask yourself what kind of trader you really are.

Let´s start by mentioning that sometimes you will find that the kind of trader you think you are or the style of trading that you want to adopt will not suit you at all.

Choosing What Type of Trader to Become

There´s a lot to take into consideration when choosing a style and defining yourself as a trader, and it´s perfectly normal to try different styles until you find the one you feel more comfortable with and the most profitable with.

When we are talking about the type of trader you are, or the trading style you will adopt when spread betting, we are talking about how you approach the financial markets.

1. Scalpers look at the lowest time frames on their charts to analyze price action and take profits from very small moves throughout their trading session.

2. Day traders look at medium time frames to analyze their charts and they are more patient in their entries and holding their trades. A day trader might get 4 to 6 trades per day if he or she is monitoring several markets and those trades might last from 1 hour to the end of the trading session.

3. Swing Traders: Finally there´s the swing traders; these type of spread bettors hold their trades for longest periods and look to capitalize on the overall market move and they really don´t care about intraday noise. Needless to say, swing traders get the less setups of all three but they can capitalize on massive market moves worth hundreds (sometimes thousands) of points.

Psychology is the key factor to look at and how comfortable you feel when taking a trade. The more comfortable you feel, the more profits you will make, because the less emotional your decisions will be. Let´s start by defining what a scalper is.

Scalping the markets

Psychologically speaking, scalpers have a very hard time holding on to their winning positions and this is why they look for small ranges and tiny break outs to take small profits here and there throughout their session. A professional scalper can take hundreds of trades per day. These trades can sum up to nice daily profits but they also have a high level of fees they pay.

There´s absolutely nothing wrong with scalping the markets for a quick point on every trade but some of you will have a very hard time with high frequency trading and this is where scalping evolves into day trading.

Day traders don´t scalp

The difference between a day trader and a scalper is mainly how long the trader is whiling to hold the spread bet opened. A day trader gets a clear entry and looks for at least a 1:2 risk to reward ratio on a single positions. A scalper is happy on getting a 1:1. More importantly a day trader looks for continuation patterns after opening a spread bet to add to the position if the market lets him.

A scalper has no directional bias and will take both long and shorts setups to spread bet for a quick point. Here´s a chart of the AUD/USD and on the first one we have outlined how a day trader would have approached this opportunity.

day trader spread bet

As you can see, after price broke with the uptrend we got a first entry to open a short spread bet; we had a nice correction in the form of a flag. When the flag broke we got an opportunity to add to our position so we opened another short spread bet on the AUD/USD. Then price started to move sideways in a triangle formation that broke to the downside. A second opportunity to add to the position was available and we closed all 3 spread bets when price reversed.

This is what a day trade would have done with this particular price action. Let´s see how a scalper would have approached the same chart.

scalper spread bet

As you can see on this chart, the scalper only takes the big impulses on volume; this is what we call momentum trades. Some might argue that both charts look the same because of the entries but you need to understand this:

–        The first short spread bet of the day trader capitalizes on the entire move

–        The second one capitalize two thirds of the move

–        The third one capitalized on the last part of it

–        This give us an accumulation of points by having 3 separate entries and letting them all run to the profit target

–        The scalper only capitalized on the momentums at the break out points.

Both trading styles are profitable and remember that when you scalp you get much more entries throughout the day. You should definitely try them both and see which one is more profitable for you and your system.

We also recommend that you learn how to swing trade.

Swing traders and fundamentals

Swing trading is a whole different ball game. Swing traders are investors that focus on the overall strength or weakness of a company or a currency and then take a position in the markets accordingly. These spread bettors normally monitor several markets at the same time and have extreme patience because they wait for the right moment to open their spread bets.

These traders have a portfolio that they try to diversify not only from different markets but also from different products.

We recommend that you start looking for possible weekly holds on higher time frames like the 4 hour or daily charts and then build your fundamental analysis from there.

But the question remains: What kind of trader are you?

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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