As there are different types of people that you will meet in your journey in life, the same principle applies at the beginning of your respective phase towards success in trading the markets. An aspiring market participant will ultimately submit themselves with a conscious choice of selecting what type of trader should they be.
These kinds of traders are separated into four categories, namely Day Traders, Momentum Traders, Swing Traders, and Position Traders. Each category is distinctive to that of its counterparties in terms of its timeframe and its style of approach towards a certain name.
Day Traders
These are are market participants who get in and out of a stock or any asset class within a few minutes to a few hours. These types of traders do not hold any position overnight wherein they would sell all their existing positions before the market closes. Most day traders use leverage to further amplify their percentage gains and losses from incremental price movements.
Momentum Traders
These people focus on bigger moves such as a breakout or a breakdown for long and short trades respectively. Ideally, these types of traders latch on to price movement that is supported with massive volume until the trend bends. The timeframe for such traders may last for a few hours to several days.
Swing Traders
These traders are similar to Momentum Traders. This type also latches on to the prevailing trend until it bends. The timeframe for such traders typically lasts from a few days to numerous weeks. Both Momentum and Swing Traders focus on daily moves rather than intraday fluctuations, which is most applicable for traders who are also working a day job.
Position Traders
Lastly, Position traders focus more on the bigger picture moves in a stock or any asset class. This type of trading is the exact opposite of Day Trading. Position Traders typically anticipate explosive moves that they deem to last in the longer term. Also, they are not concerned with daily fluctuations as they naturally hold their positions within a few weeks to numerous months.
It is possible to mix these types depending on your personality and your goal towards the financial markets. For example, an individual could both be a mix of Swing and Position trading as they wish. To further aid an aspiring market participant on what type of trader do they belong, they may ask these questions amongst themselves.
What is my time horizon? Do I want to hold names in the short-term, medium-term, or long-term?
How much time could I spend in trading the markets? Do I have a day job? Can I trade the markets while I am working or only whenever I am free?
Do I want to see results quickly? Is it okay for me to execute trades every time or sometimes?
Whichever type of trader that an individual may decide to be, it all comes down to their commitment to this craft. This endeavor requires patience, discipline, and hard work. An aspiring market participant should dedicate their deliberate practice or one’s 10,000+ hours to succeed in the markets.
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