BALTIMORE (Stockpickr) -- If your prototypical vision of a "trader" consists of someone hunkered over a half-dozen screens, frantically mashing buttons on a multicolored keyboard, you may be disappointed. The truth is that plenty of traders spend their days in careful, calm analysis of the markets, rather than constantly executing trades. It all comes down to timeframe.
Timeframes are a crucial element that traders focus on -- so much so that traders are often classified by the times they focus on. As you might expect, while their occupations may be the same, what those traders actually spend their days doing can be extremely different.
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With terms such as "swing trader" and "scalper" being thrown around by Main Street investors, it's clear that understanding your "trader type" is more important than ever. Let's take a look at the three main trader timeframes -- and the implications of following any one of them.To many people, timeframe seems like an afterthought to trading. After all, the trading strategy itself should come first, right? In fact, trading strategy and timeframe are so interconnected that the duration of a trade has become the de facto method of differentiating between different trading styles. At its simplest, the market is made up of three kinds of traders: day traders, swing traders and position traders. Nearly all traders -- be they professional, institutional or amateur -- can be grouped into one of those categories. Their timeframes can be broken down like this:
- Day Trader: Holds trades between a few minutes and a few hours; portfolio is all cash by the market's close.
- Swing Trader: Holds trades for at least a single day but no more than a month or so.
- Position Trader: Holds trades for longer than a month.
Typically, day traders use technical trading strategies that take advantage of the market's behavior -- but unlike other strategies that allow for careful study of technical indicators and charts, successful day traders need significant "fluency" with the market.
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