Like people, traders come in many shapes and sizes. There is no optimum profile for a good trader, although a degree of numeracy and the capability to work well under pressure are shared by many of them. Financial markets are always changing, and some traders find they make more money in a particular market environment than in others. Most – but not all – traders will fall into the categories we outline below.
Which type of trader sounds most like you?
Much will depend on your approach to financial markets, why you are trading, how it fits with the rest of your lifestyle, and your levels of knowledge and tolerance for risk.
The Fundamentalist
You like to do your research, lots of it. You spend a long time looking at company reports or sifting through research from brokers and other outlets. By the time you decide to place a trade, you will have done plenty of homework in advance. You are not happy opening a position until you have looked at all the angles and crunched the numbers. You like brokers who can provide you with plenty of additional information on the markets.
The Technician
You are a numbers man, a chartist. You spend hours in front of screens, using technical analysis to help you predict likely movements in the markets. You will be well-read on the various approaches to analysing markets with charting programs, either those provided by your broker or which you acquire elsewhere. You like your Fibonacci and Gann theory and can potentially spend all day looking at charts without even placing a trade.
The Punter
You like to rely on your instincts, but you will need to be careful you don’t take too many risks. A punter is a trader who might get a feel for a particular market, and somehow know when to make that successful trade. Not everyone makes a good punter, and a bad punter can quickly end up losing lots of money. Having said that, there are still a few successful traders who have an uncanny feel for where the next profit is coming from. Often this has nothing to do with expertise or knowledge, just a good grasp of market dynamics.
The Crowd Follower
You are a believer in the wisdom of crowds. After all, what are financial markets than the reflection of the decisions of thousands of traders and investors around the world, every day? You may be an expert in human psychology. You like to find and follow major trends. You don’t feel comfortable leading the charge into an undervalued or overvalued situation, but once you see enough people driving the price of a market, you will be more tempted to jump in. You are the type of trader who is happiest riding the crest of a big move, particularly if you got in early enough.
The Tactician
When you trade, you spend all day in front of your screen, jumping in and out of the market. You focus on relatively small moves in the price. You can easily make dozens of trades a day, exploiting the volatility in a particular price. Sometimes you will have multiple positions on the go at once. You like to focus on a small number of markets at a time, perhaps only one. But you like to develop an intimate knowledge of the market, letting you make the most of any uncharacteristic moves you recognise.
The Swinger
As a swing trader you are focused on short term moves in markets, particularly individual company share prices. You sit somewhere in between the Tactician and the Fundamentalist. You don’t seek long term trends in the markets, but short term opportunities you can profit from over a period of days, but no more than a couple of weeks. Keeping a position open for longer than that brings you out in a sweat. You might, for example, concentrate on price patterns on a handful of blue chip stocks.
The Forex Nut
You are a pure FX trader. You may be using spread betting or CFDs, or perhaps a margined FX account. You are more likely to be an advanced type of trader who prefers the volatility and absolute returns offered by trading FX pairs. You may just be focused on price patterns, or you may be someone who likes to scrutinise the policy statements from central banks, or know the shoe size of everyone on the Bank of England’s Monetary Policy Committee. You would never consider trading any other kind of market. You can be a Forex Nut and fit one of the other profiles on this list – for example, many Forex Nuts are Crowd Followers.
Day Trader
You typically open and close all of your positions in the course of a single day. You don’t like leaving anything open overnight. Some days you may not trade at all, just stepping away from the screen and keeping it all in cash. Many Day Traders are full time – this is their job. You may be someone who likes to keep multiple positions open at the same time during the day, gradually closing them out. A hallmark of the Day Trader is a huge wall of screens at his desk.
The Night Trader
You may be someone who has a hard time sleeping; you may want to trade markets outside your typical time zone; you may be someone who just likes to trade after work. The Night Trader trades outside normal business hours. Many Night Traders like the forex trading market because it is open almost all the time. Night Traders love the quiet and solitude of the early hours of the morning, without any interruptions from family or work. Australia has many Night Traders who like to trade European markets.
The Hedger
You like to trade CFDs or other derivatives to reduce the risks you take in physical markets. You will already be trading shares or physical commodities, but you want to manage some of the risks you take. Hence, you use CFDs, spread bets, futures or options to take the opposite side of a trade you have money in. That way, if it goes against you, some or all of the damage can be limited. You are the type of trader who is not trading derivatives for profit, but as a risk management tool.
The Dabbler
You are not a regular type of trader, and may even spend months away from the markets. You will often just trade when you come up with a new trading idea, or something newsworthy inspires you to have a go. Generally, your trading activity will be driven by an opportunity you see in the market, that sustains further research and scrutiny – for example, you may think a particular commodity has become underpriced. Once that trade or theme has played itself out, you may decide to take another holiday.
The Micronaut
You are a small caps specialist. You will typically have a high tolerance for risk, and tend to trade the prices of smaller companies. You may have started off trading shares, but now also make use of margin trading – e.g. using CFDs – to trade the prices of small stocks. You like the volatility and sudden upswings (and downswings) smaller company share prices can produce. Many Micronauts are active in the energy and natural resources sectors, focusing on the shares of gas and oil exploration companies. Micronauts need to be very cool-headed individuals.
The Wedding Crasher
You are an event driven trader: you make money around changes in price caused by specific events. This can be a projected interest rate rise or cut, some wider political or economic event, or some item of company news. Wedding Crashers often pick up news and rumours flying around the market, taking an interest in particular in potential mergers or acquisitions. Typically, Wedding Crashers will be very active traders around the share prices of two companies in takeover or merger talks.
The Robot
You are interested in program trading, using software-based trading signal generators to help you manage your trading. You may even be writing or selling your own program. As such, you will probably be using MetaTrader 4 or 5, and focusing on very liquid markets, like forex or indexes. You will want to make use of brokers who will let you use trading programs (or Expert Advisors as they are called). You combine your enthusiasm for technology with your appetite for beating the market using sophisticated programs that can manage large numbers of trades.
The Newbie
You are thinking of trading for the first time. It may be that you want to manage some money in the market yourself, either using shares or ETFs, or perhaps opening a spread betting or Contracts For Difference account. You will want to make sure that you have fully researched the topic of margin trading, if this is what interests you, and are fully aware of the risks. Several brokers offer services suitable to the Newbie, allowing you to dial down the risk while you get comfortable with managing your first trades. These services will enable you to get to know what type of trader you are.
So, how was that? Do you know what type of trader you are? Have you learned anything about yourself? If you have, then you are well and truly on the path to trading enlightenment.
