Some Common Myths About Forex Trading

Matching personality types to FX trading styles is a bad idea that needs debunking

Jan 6 • Forex Trading Articles • 1042 Views • Comments Off on Matching personality types to FX trading styles is a bad idea that needs debunking

There are four primary trading styles for trading forex markets as a retail trader: scalping, day trading, swing trading and position trading. Over recent years a movement has developed on FX trading forums to identify which trading style matches your personality and go with it.

The suggestion on forums is that if you’re a twitchy, nervous individual who thrives on adrenaline, reacts quickly, and makes knee jerk decisions; then you should consider choosing scalping as a trading style. Whereas, if you’re a considerate, patient, calm individual, then swing trading or position trading will suit your personality traits more.

These claims are nonsense and don’t stand up to scrutiny, and they collapse on initial inspection because a trading style must fit your lifestyle and not your supposed personality. Even worse, if you are the twitchy nervous, individual who’s prone to make knee-jerk decisions, then no trading style will work for you.

Eradicate negative personality traits, don’t embrace them

If you’re a scalper with the personality traits listed above, you’ll continually make poor decisions, and you’ll overtrade while potentially indulging in revenge trading. It would help if you eradicate these faults, not try to match a trading style to them. If you’re patient, calm, forensic and diligent, these characteristics will benefit you whatever trading style you choose.

Trading FX is not a contact sport; you don’t compete against a market with $5 trillion of turnover each day and millions of participants. You don’t fight it and take it on, you must work with it to find the path of least resistance. To bank profit, you must identify trends, whether they’re daily or longer-term trends and ride them.

The time you dedicate towards trading dictates what trading style you should adopt, nothing else

Time is the critical factor to decide which trading style you should use to engage with the market. Scalping is a difficult skill to master even on the best of breed platform, MetaTrader’s MT4. It would also be best to have perfect fills time after time, incredibly low spreads, and minimal slippage to excel at scalping.

You also need to ensure you’re available to trade during peak hours because you’ll get glued to your screens. You need to maintain a substantial trading account to cater for the inevitable significant drawdowns you’ll experience, an issue that will test the mindset of even the most robust characters.

There is only one consistent method scalpers have used to succeed, and it involves automation. Scalpers look for small pip gains over and above the cost of each trade. But the caveat is that if you’re looking to make five pip gains using automation and your equivalent trading cost is two pips on average, then your profit margin is very tight.

Day trading has similar time issues; you must be available to react to all breaking events that cause price action and respond very quickly. A reasonable conclusion would be that scalping, and day trading can only be used by traders who treat FX trading as a full-time occupation.

Swing and position trading match both mindsets and time pressures

The inevitable conclusion is that swing and position trading are the go-to choices for most part-time active FX traders in the retail sector who want to build an alternative income stream. Irrespective of personality traits, these trading styles ideally match the time constraints most active FX traders need to work within. Ironically, if novice traders suffer from personality issues such as impatience leading to knee jerk decisions, then swing, and position trading might help them overcome these barriers to success. In some ways, novice and impatient traders will become compelled to analyse the market calmly before making decisions. This attitude will have a spill-over effect on money management, mindset and enable them to identify successful methods and strategies.

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