Talking Points
- Day trading may be a trading approach that is suitable for active personality styles
- According to Jack Schwager, author of Market Wizards, successful traders usually match one of the five types of trading with their personality type
- Traders who choose a trading method that is contrary to their personality have difficulty sticky to their trading plan
While swing trading strategy would ideally fit the analytical person as he aims to profit from both trend following moves and the subsequent corrections, active personalities may find swing trading uncomfortable. Though there are many advantages to swing trading, active personalities who naturally make quick decisions will find it difficult, if not impossible to stick to a swing trading plan. They will find themselves taking profits or exiting a trade too early. During the time a trade needs to unfold, active personalities may become restless and even begin question the trade.
Active personalities will find it difficult to sit and wait for a setup to unfold. This too, can lead to disastrous results. These active/driver personalities may fit better with a short-term scalping approach that allows them not to have overnight positions and being flat at the end of the trading day.
However, short-term scalping is one of the most cognitively demanding forms of trading. Successful scalpers rely on intuition developed through years of experience along with a defined set of rules that are part of their overall system. This may be out of reach for traders who are just starting out.
Even though active and driver personalities have the innate ability to make quick decisions, they may lack the experience and strong technical knowledge base. This leads to lots of bad trade decisions done quickly. In addition, new traders who have more active personalities tend to overtrade their accounts. Even experienced active traders can fall into the overtrading trap as well.
The Happy Medium: Day Trading
So what is the solution? Day trading is the happy medium between the longer swing and position types of trading and hyperactive short-term scalping. Day traders may take two or three trades a day and then liquidate all trading positions before the close of the trading day. A day trader does not subject his or her capital to overnight risk that can adversely affect a portfolio.
Being flat by the end of a trading session would be very attractive to an active personality who may become concerned about open positions while providing a fair amount of market activity to keep them interested and engaged. On the other hand, day trades usually require less attention than short-term scalps. An active personality can put the forex quotes down and sleep.
In day trading, intraday breakouts can lead to trends which may unfold over the course of the trading day offering the possibility of grabbing a large portion of a currency pair’s average range. While day trading requires skill, knowledge and discipline, it does not require the precision and high winning percentages to become profitable like scalping.
Unlike scalpers, day traders can usually locate trading opportunities that offer a minimum 1 to 2 risk to reward ratio. By only taking trades with a 1 to risk to 2 reward ratio, day traders only need to win 32% of the time to breakeven. Over time, as the active personality skills develop, they may incorporate scalping as a natural next step.
By developing a solid day trading plan, active traders will have both a winning strategy that they can stick with because it matches their personality style which needs activity and variety. So often, we hear that traders have to change to fit trading. To some extent this is true. However, if these changes are too far from a person’s core personality, failure is more likely. Personality should drive the choice of a trading strategy rather than potential profit or success of others.
What trading style fits your personality? Take this online personality test to find out.
— Written by Gregory McLeod, Trading Instructor
To contact Gregory McLeod, email gmcleod@dailyfx.com.
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This article showed you how day trading fits traders whose personality tends to be more active. If you are brand new to Forex trading or need a review, enroll now in a free New to FX trading course. A short 20-minute review of the basicsmay be all you need to get your trading back on track!