Find out what type of trader you are

Fundamental Trader

• Pros and Cons

  👍 Pros

  •Comparatively low risks of losses

  •Allows to combine trading and your day job

  •The most psychologically comfortable strategy for traders

  •Does not require in-depth knowledge of mathematics and programming

  👎 Cons

  •Low profitability

This type of online trading is perfectly combined with a day job in any area of business, as it does not require you to sit continuously in front of the screen and control your positions. As a rule an investor forms a portfolio of 10-50 stocks and adjusts the composition of the portfolio from time to time. The period of holding one type of stock in the portfolio may range from one quarter to many years.

This type of online trading is suitable for people who are not inclined to take risks, don’t like to change their decisions often and are not chasing excess profit.

Drawback the profitability of fundamental trading is comparatively low. Successful investors may expect the profitability of their portfolio to surpass the index, but not by much. , the trader will have to resign to the fact that stocks can behave unpredictably short-term.

Fundamental trading provides the best result after year and longer.

• Books to read about fundamental trading

  You can start with classic works on fundamental analysis:

  

  The Intelligent Investor by Benjamin Graham

  

  Common Stocks And Uncommon Profits by Philip A. Fisher

  Online resources you might find useful

  Earnings Calendar on Nasdaq website can help you monitor the releases of quarterly reports of companies.

  The screener on Finviz.com will help you choose the best company for investment through engagement of several dozens of built-in filters.

News Trader

• Pros and Cons

  👍 Pros

  •Profit margin is higher than average

  •Possibility of building strategies that are neutral to market

  •Possibility of building a bot for trading based on the news

  👎 Cons

  •Requires in-depth understanding of macroeconomics and market psychology

  •It is difficult to compete with algorithms

This type of trader follows the important economic news and makes decisions on entering a position based on th. The task of the trader is to quickly and accurately interpret the events and attempt to play on the market volatility that follows the release of the news.

As a rule, news traders do not try to cover the whole market instead focus on Forex, Stock or commodity markets.

The complexity of this trading type is that you must be able to interpret the news from economic and psychological standpoints. Often, the initial market reaction to the news contradicts economic logic. You need to have a good understanding of what the market expects and to extent the news is a surprise or disappointment for it. In recent years, it has become difficult for news traders to compete with trading robots that are programmed to make decisions within milliseconds. This is the reason why news trading is increasingly mixed with algorithmic trading.

He advantage of this type of online trading professional traders can achieve a higher profit margin than fundamental traders. For the most advanced news traders, the emergence of volatility is important, as they can use combinations of base assets and options in trading, allowing them to earn money on price fluctuations.

News trading should not be confused with news-based investment. Long-term investors also monitor the most important events, but their is not to profit from short-term volatility but rather more extensive analysis for entering long-term positions.

• Books to read

  Macroeconomics and the notion of market volatility make up the foundation of the news analysis, which is why you need to study these topics first. For example, you read:

  

  Concise Guide to Macroeconomics by David A. Moss

  

  Trading Volatility: Trading Volatility, Correlation, Term Structure and Skew by Colin Bennett.

• Online resources you might find useful

  Economic calendar is instrument of a novice news trader. It will help you review the schedule of news releases, forecasts of the economists and set filters for the desired markets.

  Many brokers offer an economic calendar on their websites. For example, on FxPro it looks like this:

  Professionals work directly with the information sources.

Scalper

• Pros and Cons

  👍 Pros

  •Potential profitability margin is higher than average

  •Earnings do not depend on market direction

  •Possibility of building a bot for trading automation

  👎 Cons

  •Stressful

  •Requires knowledge of programming and mathematics for exclusion of the human factor

Scalpers are the most active type of traders. Often, the scalpers perform up to several hundred transactions per day, trying to catch the slightest market volatility. The time of position holding ranges from several seconds to several minutes. Although this type of online trading holds a promise of good profits for professionals, it is considered the most stressful. Only the most liquid markets with narrow spreads, such as Forex pairs EURUSD and USDGBP, Apple (AAPL) and Bank of America (BAC) stocks are suitable for scalping. Many scalpers trade only during a small part of the day, for example, during the alignment of the British and North American trading sessions on Forex, when the liquidity is at its maximum.

The choice of the broker plays a decisive role for a scalper because in this trading type, the expenses on commissions are at their maximum and can ‘eat’ over half of the profit. Advanced brokers offer special conditions for scalpers, as they are the most active traders, maintaining liquidity in the market.

Some scalpers use minute and tick charts for trading and base their decisions on technical analysis. However, lately, scalping has been turning into a more automated process and the trader earns profit through a very small spread between the purchase and sale price of the asset.

• Books to read

  

  Forex Scalping Trading Strategies: How To Earn A Living Scalping Profits by Thomas Carter

  

  Scalping Stocks and Futures: Making Money With: Top Strategies by Andrew C. Ellis

Day trader and Swing Trader

• Pros and Cons

  👍 Pros

  •Potential profitability margin is higher than average

  •For beginners

  •Possibility of building a trading bot without special programming skills

  👎 Cons

  •Psychological risks

  •Losses at the time of volatility

As a rule, day traders and swing traders us technical analysis or volume analysis for trading. The difference between them is mainly in the timeframe and the period of position holding. Day traders trade by mainly using charts with a timeframe from 5M to 30M, trying to close all their positions by the day’s end. This trading type is suitable for more active traders prepared to dedicate a larger part of their day to trading.

Swing traders can hold positions from several days to several weeks, while their working timeframe on the chart is from 1H to 1D. This trading type is suitable for traders who prefer to be in the market for the majority of time, but not perform many transactions and not spend more than hours a day on trading.

Example: BTCUSD price is breaking the swingline, which is a good signal for many day traders and swing trader to open a short position.

• Books to read

  

  Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy

  

  Getting Started in Technical Analysis by Jack D. Schwager

  

  Reminiscences of a Stock Operator by by Edwin Lefèvre

  Online resources you might find useful

  

  Tradingview.com is the best resource for technical analysis

Arbitrage Trader

• Pros and Cons

  👍 Pros

  •With model

  •Automation of decision making

  👎 Cons

  •Requires in-depth understanding of mathematical statistics

  •Competition with the top mathematicians and programmers of the world from large investment funds

Arbitrage traders seek possibilities of risk-free earnings in the market through performance of several simultaneous buyandsell transactions in trading instruments with high correlation. Arbitra traders earn market inefficiencies.

• Books to read

  The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It by Scott Patterson.

  The Complete Arbitrage Deskbook by Stephane Reverre.

Algorithmic Trader

• Pros and Cons

  👍 Pros

  •Trading automation

  •Exclusion of human errors

  •Less stress and time

  👎 Cons

  •It is difficult to compete with major investment companies

  •The strategy must be regularly adjusted to the changes in the market

Algorithmic traders earn their money by using a computer trading program, which fully or partially automates trades. This type of trading eliminate all drawbacks of trading, such as emotion-based decisions, stress, incorrect interpretation of data, continuously control your positions.

A bot will execute the exact orders it is to , which is why algorithmic traders can use all trading strategies we have described above.

Understanding the work of technical analysis indicators is enough for creating the simplest bots. Using special trad software, you can automate and test your ideas even without in-depth knowledge of programming. R Trader platform from RoboForex offers this option.

The definitive drawback of simple bots is that you cannot set flexible and in-depth criteria. It is slightly more difficult to build a bot on the MetaTrader platform because you will need at least beginner-level programming skills for that. However, the depth of its settings is also much higher.

Trader-programmers build the most complex and efficient trading bots using the languages designed to process statistical information, such as Python and Java.

• Books to read

  This depends on the strategy you want to base your bot on. Potentially, these are all the books we mentioned above.

  Also articles on specialized forums can be useful.