It’s not uncommon for new traders to bounce from strategy to strategy as they start their trading careers. I think that’s primarily because they are looking for ‘instant results’. After all you’d feel like bit of an idiot if you continued doing the same thing and losing.
So after a loss new traders quickly Google ‘trading strategies’ and jump on whatever is at the top of the list. This can quickly lead to a continuous cycle of destruction as you bounce from strategy to strategy & before you even work out how the market works you run out of cash.
One thing you have to understand as a trader is, each day is a new day. This is one of the first things drilled into me when I was a junior trader at Citibank. So when I went to work every day I just didn’t pre-empt the trading strategy before I had a good look at the market.
Unfortunately the same can’t be said for most retail traders & this is where their progression as a trader breaks down.
I think traders can be broken down into two main types: Position Traders or Day Traders
This is my interpretation of the two groups.
Position trader – the goal is to profit from the move in the primary trend.
Day trader - the goal is to profit from the short term fluctuations that occur day to day.
Now in my 28 years of experience you’re either one or the other – not both.
The Position Trader Characteristics
The Position trader is completely structured with both the technical and fundamental aspects of the market analyzed. They are extremely patient waiting for the best trade set ups and don’t feel compelled to trade if market conditions aren’t suitable.
The position traders ‘trading day’ usually involves 30 minutes of analysis per day and potentially 3-5 traders per week. They assess market conditions before determining what strategy to use.
The position trader has a range of ‘advanced strategies’ that enables them to optimize the opportunities when they arise. That could very well involve numerous trades on the one opportunity but there is complete structure to that approach.
The position trader can read trends, understand the impact of central banks, and identify varying market conditions: volatile, choppy, normal & trending.
The position trader profile definitely suits traders who are juggling full time jobs, family obligations and a busy lifestyle.
Me personally, I am a position trader & our Pro trader course is based on this methodology.
The Day Trader Characteristics
The day trader is less structured and rarely analyses the market technically or fundamentally. They are impulsive and feel compelled to trade as soon as they turn the screens on.
The day traders ‘trading day’ usually involves 12-14 hours in front of the screens per day and huge daily trading volume.
The day trader ‘usually’ relies on a range of indicators to determine their trading decisions. The most common is the Parabolic Stop & Reverse but they change from one to another very quickly as their trading results change.
The day trader is focused purely on momentum and is ready to jump on a move at the drop of a hat. The core strategy is trade with momentum.
The day trader is generally self-employed and/or trading fulltime. They have a lot of time on their hands!
Are you a position trader or a day trader?
I ask this question because the strategy each type of trader uses is completely different and you could be losing because the strategies you are using for your trader type are wrong.
You could be a position trader & be using ‘day trading strategies’ & getting hammered. And vice versa you could be a day trader & be using ‘position trader strategies’ & getting hammered.
Position traders – don’t get sucked into ‘trading’ by the impulsive urge from other traders.
Take your time, identify the set up & pounce when the opportunity presents itself. Don’t feel like you’re not achieving just because you’re not turning over 50 traders a day. Generally speaking, less is more (traders) for position traders.
Day traders – understand the indicator you’re using. Is it good to use in trending markets or range bound markets?
Be careful to stick to your trade limits. One of the big dangers is getting too emotional on a run of losses and then over trading trying to get the cash back. If you feel emotional turn the screens off before it’s too late.
Understanding the chat in forex trader forums
Understanding the two types of traders should enable you to decipher the various discussions you will encounter in various forex trader forums.
You will come across traders who are jumping from one pair to another and their bias changes with the minutes that tick by. These guys are day traders; they are extremely active and chatty.
You will come across traders who are very structured and quiet. Don’t feel like they’re not interested just because they’re not chatting a lot.
What you need to do is find your feet and be confident with what type of trader you are. If you aren’t happy with it, then go find some ‘training’ to upskill yourself to modify your approach.
Everyone has a different risk profile, lifestyle, training & experience … the list goes on and on. So simply trying to mimic a trader by what they are saying is not the answer unless they have the exact same characteristics as you.
How can both traders improve performance?
Position traders – wait for good technical set ups & clear fundamental direction. The cash will roll in if you’re patient.
Day traders – spend a few minutes identify market conditions before you jump into the market. Isolating trending or range bound markets may give you a lot more edge as you go about your trading day.
Most importantly for both types of traders, don’t pre-empt the strategy you’re going to use before you turn the screens on and assess the market.
The market should lead you into the best strategy to use. If it doesn’t, don’t feel compelled to trade just because you’ve got the screens on!
The risk of loss in Forex trading can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in the light of your financial condition. The high degree of leverage that is often obtainable in Forex trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. Past performance is not indicative of future results.