Pete the Position Trader
Pete is a busy man with a demanding wife, eight kids, four dogs, three cats, two hamsters, and a pet komodo dragon. It would be impossible to support such a large family on a meager salary, so fortunately, Pete is a successful doctor.
Pete doesn’t like to sit in front of the computer all day. But he does enjoy reading about the world’s economies and has a short list of countries which he keeps up with their economic data releases. Pete prefers to position trade. This means when he enters a trade, his holding period is between a few weeks to a couple of months. He only trades several times a year. Often, at the end of the year, he can recount his number of trades on one hand.
In order to do this, he uses discretionary fundamental analysis. This means he takes an hour or two every week to see what the economic reports (like GDP, employment data, CPI, etc.) are indicating to him. He then makes a decision on which way to trade, but does not automatically go with the signals. Because Pete’s trades are longer term in nature, his profit targets are huge – but so are his stop losses! His stop losses usually range between 100-500 pips while his profit targets range from 500-1,000 pips or more. His trades have a big reward-to-risk ratio, which allows him to minimize his losses when he’s wrong, but hit the jackpot when he’s right.
Pete really enjoys being a position trader because it allows him to have a life. With his current work and family obligations, Pete clearly doesn’t have the time to devote to being a day trader. His trading personality doesn’t require him to make a decision in the heat of the moment and allows him to look for longer-term trends. As a position trader, he can juggle a busy career with his demanding wife, eight kids, four dogs, three cats, two hamsters and Komodo dragon.
Sam the Swing Trader
Sam is a single guy who owns a small coffee shop around the corner, where he works part time. He has also been trading on the side for a while now, and now his schedule is at the point where he is able to watch the market an hour or two a day.
Sam prefers to hold trades in a shorter time frame than Pete the Position Trader. He attempts to predict the short-term fluctuation in a currency pair’s price, and is willing to hold his trades open for more than a day, or even a few days, to give the price movements some time and capture additional momentum. On some trades Sam will generally be in a position from several days to even a week.
Sam dedicates an hour each day and/or evening to go over the market. The first half of his hour is spent reading the major economic news of the day and what news reports are coming out within the next 24 hours. Based on what’s going on globally, he determines whether the currencies he is watching will see volatility or not. Since he only watches two or three pairs at the most, it doesn’t take him long to read the major reports of the day.
After Sam has finished reading the economic news and reports, he determines if the market will trend or range for the next few days, or even weeks. He pulls up his charts and uses technical analysis to find good entry and exit points. His tools to find support and resistance include Fibonacci retracements, channels,trend lines, moving averages, etc. He then sets limit orders with stops and profit target levels, so it’s all practically automated when he enters and exits a trade.
Sam has been pretty successful. He is able to mentally weather the daily swings a swing trader has to go through. His losses have been limited to 50–100 pips, while his gains have ranged between 100–500 pips.
Sam usually checks his position once or twice a day just to make sure unforeseen events haven’t significantly affected his positions, and the rest of his day is spent doing whatever he wants, whether it’s working, hanging with buddies, or browsing internet auction websites for comic books to add to his collection.
Diona the Day Trader
Diona is extremely impatient and feels she always “needs to be doing something.” Her trading style consists of trade positions that are opened and closed in one day or less. Some days, she may only trade once. Other days, she may trade several times before the market closes. The bottom line is that she exits all positions by market close (5 p.m. EST) or when a session, such as the European or Asian session, ends. As a day trader, Diona feels the need to be in the market at all times because she’s afraid of missing a good trade. She is also risk averse and is scared of losing too much per trade, so she uses small stop losses.
Diona has spent years developing a consistent method of taking profits out of the market. Her account is big enough where she could quit her job, and she watches the market full time now. While she is aware of news releases on any given day, Diona mainly relies on technical analysis when trading. She has been using technical tools such as oscillators (MACD, RSI, Stochastic) and moving averages, which automatically signal her to enter and exit high probability trades. She just follows the signals.
Most days, Diona goes for 10–50 pips or more while limiting her losses to 10–20 pips, but occasionally she will scalp the market. Scalping is a method where she trades larger lots and takes less pips (usually 5-10) out of the market. Most of her scalp trades last for a few minutes or even seconds!
The day trading and scalping methods allows Diona to make one to several trades per day and satisfy that “need to be doing something.” Her confidence in the system allows her to stay with the plan and stick with the rules. She does not have to decide whether or not to enter a trade – the charts do it for her! However, Diona knows that her system is not perfect. She loses a little less than half of her trades, but her average win is almost twice her average loss. Over the long run she has consistently profited from the market. She is now able to work from home, be her own boss and take time off to travel whenever she chooses.
