The Types of Forex Traders

The different types of forex traders can be broken down into a few major categories. What makes each “type” of forex trader different is mostly attributed to how each decides to make trades on the foreign exchange market.

Timeframes and Traders

Since this lesson has an emphasis on timeframes, we’ll stick with the general theme of how multiple timeframes play a role in the types of traders.

• Day traders – Day traders are people who buy and sell quickly, often opening and closing positions within the same day.
• Swing traders – Swing traders are short-term traders with longer holding patterns than day traders. A swing trader might buy and hold a position for a period ranging from a few days to a few weeks.
• Long-term investor and trader – The long-term investor or trader prefers to buy and hold for a period of many weeks or months.

The role of timeframes

Timeframes play an important part of understanding how each trader makes their money, and what they focus their attention to.

• Day traders – Day traders typically focus on charts with short timeframes of 1 minute to 30 minute candlesticks. Day traders are focused around the short-term buy and sell signals, and rarely look at very long term charts because the long-term hardly affects a short-term buy and sell.
• Swing traders – Swing traders may look at candlestick charts ranging from the 15 minute candlesticks up to 1 or 4-hour candlesticks. Swing traders don’t spend a lot of time evaluating the very minor movements in the one minute candles, nor do they spend a lot of time in the very long-term weekly or monthly bars.
• Long-term investor – The long-term investor may completely ignore all charts up to the 1-hour candlestick or longer. Since the long-term investor is focused on very long-term changes in the price of a currency pair, the 5-10 pip movements on the 5 minute candlesticks are of very little importance. However, the long-term investor will dedicate substantial time to the 1-hour or larger candlestick charts, since these candlesticks define how much they earn or lose on the forex market.

Advantages and Disadvantages

How you decide to trade the foreign exchange market has a lot to do with your core understanding of the forex market, and also your personality. The diagram below explains the pros and cons of trading different timeframes and different investment styles: