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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 all markets there are buyers and sellers giving conflicting opinions and positions. These conflicting opinions about the state of the markets from the herd or the collective are what ultimately define trends.
Let’s look at the factors that define and influence market trends.
When looking at fundamental analysis of the forex markets an extensive list of various factors can change trends and influence price fluctuations. Among the factors that could influence current and change of trends is political, economic and other unforeseen events.
Think about this. At anytime any country can reinforce or undermine with just words their countries currency. You have to be prepared for the unexpected and be able to profit from it. In the past Central Banks have intervened and to this day have been successful each time.
Since all traders are always following the flow of price and indicators they have certain expectations on what they perceive will happen in the future. You cannot be tied to your positions because in an instant the market could turn and wake up for a sleeping market into a wild beast. News releases can cause the market to trade in high volatility. It is important your method takes into account all news events and you know on which days the volatile ones are expected.
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 very important to watch the polices of Central banks and market markets (financial coalitions like the EU and hedge funds) and others with large access or market influence. Central banks and also market markets to a lesser extent have the power to change market trends through intervention and you always need to be aware of what their policies are at all times.
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.
More so than ever before the forex market with more traders and transactions taking place on a daily basis trading has become more unpredictable than ever. The more work you put in, the more information you have paying close focus on trend analysis and the state of traders as a whole or collective and individual the greater your edge to profit.
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