Scalper
The scalper lives by the minute hand, continually buying and selling in order to take advantage of fleeting discrepancies in order flow. Scalpers may make as many as several hundred trades a day, comprising thousands of contracts. The classic image of a scalper portrays an individual who shouts, shoves, and survives on the exchange floors. But advances in technology and mobile communication now enable the scalper to conduct his or her business from virtually anywhere.
Scalpers rely on intuition. They buy from and sell to all timeframes, and their ability to respond to the immediate needs of the marketplace provides essential liquidity. As you may have guessed, this, the shortest of timeframes, tends to be utterly detached from longer-term economic thinking; fundamental information is far too slow and cumbersome.
The scalper’s world is that of bids and asks and order-flow depth. I remember when a friend and comember of the CBOT called to tell me that one of the most successful local traders wanted to come up to my office for a chat. Just before we hung up, my friend said, “Don’t mess this guy up with theory—he knows nothing about the inverse relationship between bond prices and yield. He’s just a master of reading order flow.”
Day Trader
The day trader enters the market with no position and goes home the same way. Day traders process news announcements, reflect on technical analysis, and read order flow in order to make trading decisions. They also have to deal with long- and short-term program buying and selling, brokerage firm margin calls, mortgage banker’s duration adjustments, speeches by Federal Reserve governors, and “important pronouncements” by political leaders and influential portfolio managers.
Anyone who believes markets are rational should spend a day trying to digest and react to the landslide of conflicting data day traders must wade through to make a decision. This group focuses on large quantities of technical information; they love numbers and levels and hype. Like scalpers, day traders also provide liquidity for markets, although very often at great personal expense.
Short-Term Traders
Short-term traders often hold trades longer than a day, but usually not longer than three to five days. There is no scientific evidence to support this view, but I observed this time frame’s behavior when I ran a discount brokerage firm in Chicago in the late 1980s. Short-term traders, such as day traders, have to contend with a huge quantity of data. But they tend to pay more attention to technical and economic fundamentals.
Short-term traders generally focus on multiple days of overlapping prices, attempting to buy the lows and sell the highs while watching for breakouts. They use market-momentum indicators and monitor trend lines and trading channels to time their buys and sells. They are not out to influence market behavior but to be flexible and adaptable enough to react to and capitalize on events that trigger short-term market movements.
Intermediate Traders/Investors
The difference between intermediate traders/investors and short-term traders is simply that they operate from a longer point of view. Participants of this time frame are often referred to as “swing traders” because they look to trade the tops and bottoms of intermediate-term ranges such as the one illustrated in last figure, which illustrates the S&P market from November 11, 2005, through February 16, 2006. Intermediate traders bank on the fact that markets, like pendulums, travel only so far in one direction before changing course.
Read More : Breaking Down Market Timeframes
