Although the psychology makeup of individual forex traders is often talked about and discussed less often and more importantly the psychology of the collective group is all too often neglected. Have you ever though about what the collective actions of all traders making up the markets is and the effect that has on future price movements?
In every market there are conflicting positions between buyers and sellers. It is precisely these conflicting views that define market trends. Since all generally have access to the same information, which makes the difference is the position we take each other, the majority herd mentality defines the trend and when it is about to end.
What are the factors that influence trends?
In fundamental analysis an extensive list of factors can influence and change trends in the currency market. These can be both economic, political, geographic, and others.
For example, a change of government in a country can reinforce or undermine confidence affecting the currency it represents. Certain measures taken by states or central banks or directly strengthening or depreciating its currency against others, leading to bullish or bearish trends according to the interpretation of traders as a whole.
Forex traders regularly follow the flow of price and indicators which generates high expectations on certain occasions. These are the times when the market is usually quiet, and as soon as the data is published, starting the runs as each operator hopes to be one of the first to enter the market to gain an advantage, since there are usually some consensus on expected results. Certain indicators such as economic growth (GDP), employment levels and retail sales effect the willingness of investors as a whole and are important to focus on.
Also, in times of great instability and uncertainty, increased risk aversion as investors tend to demand hard currency. Conversely, in times of greater stability people are willing to take on greater risk in favor of higher profits.
It is also important to pay attention to the behavior and policies of market makers\” those with access to large amounts of foreign exchange (financial coalitions, hedge banks, governments). They are market makers that have the power to change the course of the latter at any time they feel that particular currency or economic situation could be in danger.
More often than not it is the normal market influences that move the market which include media outlets, price action, news events and both technical and fundamental analysis but you always have to be aware of unexpected events such as the devaluation overnight of the Russian or Argentinian currencies or a terrorist act like 9/11. The group collective and their emotions can be understand providing an edge over the market and all other traders.
The forex market is now much more unpredictable and fluctuating than it was ten years ago. The more information you have, including the daily analysis of trends and factors that influence them will anticipate a greater chance for profit.
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Tags: currency trading, finance, forex, investing, Money, personal finance
