Forex Trading is not only about reading charts...it is about understanding our fellow man.
So, you have picked up several forex books and have read them twice and finally have a grip on the charts....like what the difference is between support and resistance and forex pivot points. And now, you are ready to play around with a forex "dummy" account. Forex trading could be that easy but it really isn't. Understanding how your fellow forex traders react to news is equally important. And if you break that code, you are on your way to making a fortune trading forex.
Well, if you think that you can make a small fortune simply by reading forex charts, understand that forex trading has just as much to do with human behavior and understanding it as it does learning how to decipher the candlesticks (or whatever graph you are using) that magically appear on whatever platform you are using.
The good news for you is human behavior hasn't changed for thousands of years. Get a grip on what moves people and you will on your way to having a stranglehold on the forex market.
The bad news is that chances are you are going to have to get a grip on your own human behavior. In other words, you are going to have to set some ground rules when dealing with the forex market.
My background doesn't come from the world of economics although it involves a genre that is alot like forex and a lot of people will either agree or strongly disagree that these two things are the same:
Well, if you think that you can make a small fortune simply by reading forex charts, understand that forex trading has just as much to do with human behavior and understanding it as it does learning how to decipher the candlesticks (or whatever graph you are using) that magically appear on whatever platform you are using.
The good news for you is human behavior hasn't changed for thousands of years. Get a grip on what moves people and you will on your way to having a stranglehold on the forex market.
The bad news is that chances are you are going to have to get a grip on your own human behavior. In other words, you are going to have to set some ground rules when dealing with the forex market.
My background doesn't come from the world of economics although it involves a genre that is alot like forex and a lot of people will either agree or strongly disagree that these two things are the same:
Forex and Gambling
Like it or not, a successful gambler has about as much in common as a successful forex day trader.
Now, I am not going to get into a ethics debate or some sort of philosophical argument about whether forex trading is alot like gambling. I am not here to do that. But there are way more similarities to it than not and therefore, to get a good grip on human behavior and what affects the other amateur forex traders, you need to understand what moves them. Understand this and you will be far ahead of most other traders......
Alot of these amateur traders who didn't really know how to trade forex were at first making some pretty incredible gains....some at 10-20% per month. Of course, it had to happen. Some of the young forex traders started thinking to themselves...
If I can make this much on a 50:1 margin, just think of what I could make if my margin was 200:1 or 200:1?
For awhile these guys were making a ton of money..hand over fist. The forex market look bright for these people. Then, all it took was a little bit of news from Japan for many of these people's accounts to be wiped out.
Just one tiny bit of news from Japan, rocked those people so hard that all of those forex traders who were playing with high margins and large stop points suddenly watched their account literally disappear.
Now the point here to take is not whether automated software is good or not. The point is that getting greedy will result in disaster 9 out of 10 times.
Which brings me to my next point....Fear.....
As a pro gambler, I have seen some pretty stupid things done out of fear. Human behavior affects Forex trading is no different. I have watched people double down, chase bets, and pretty much do anything possible in order to recoup their losses.
There is a popular gambler's creed that has been my mantra now for years...
- Both put in the hard work doing number crunching.
- Both gamblers and forex traders not only set goals for themselves.
- They also set limits...in other words, they rarely chase their bets. Their behavior doesn't change from day to day regardless of whether they win or lose.
- Forex traders also understand that there are going to be losing days. What they are concerned about is the bottom line..you know..what the ledgers say at the end of the month.
Now, I am not going to get into a ethics debate or some sort of philosophical argument about whether forex trading is alot like gambling. I am not here to do that. But there are way more similarities to it than not and therefore, to get a good grip on human behavior and what affects the other amateur forex traders, you need to understand what moves them. Understand this and you will be far ahead of most other traders......
- Greed
- Fear
Alot of these amateur traders who didn't really know how to trade forex were at first making some pretty incredible gains....some at 10-20% per month. Of course, it had to happen. Some of the young forex traders started thinking to themselves...
If I can make this much on a 50:1 margin, just think of what I could make if my margin was 200:1 or 200:1?
For awhile these guys were making a ton of money..hand over fist. The forex market look bright for these people. Then, all it took was a little bit of news from Japan for many of these people's accounts to be wiped out.
Just one tiny bit of news from Japan, rocked those people so hard that all of those forex traders who were playing with high margins and large stop points suddenly watched their account literally disappear.
Now the point here to take is not whether automated software is good or not. The point is that getting greedy will result in disaster 9 out of 10 times.
Which brings me to my next point....Fear.....
As a pro gambler, I have seen some pretty stupid things done out of fear. Human behavior affects Forex trading is no different. I have watched people double down, chase bets, and pretty much do anything possible in order to recoup their losses.
There is a popular gambler's creed that has been my mantra now for years...
....Don't play with scared money....
I don't mean to ramble on about gambling but I just see some striking similarities in forex trading and gambling. And understanding it can actually help you get a grip not only on your own behavior but also on what others are feeling when the crap hits the fan.
So, how does understanding this help you?
The next time you are listening to forex news and/or trading the news, watch how the market reacts but more importantly think about how the other traders are reacting. At what point will support or resistance be hit? How drastic was the news? Where did the forex market open on the day? Where is it forecasted to close? These are all important questions to ask, especially if you are a forex day trader. Now try to get a good feel on other investors...are they unfairly inflating the numbers based on fear?
I hate to give another sports gambling example but I feel like once again it is relative. Just a couple weeks ago, the Patriots were big favorites in the superbowl...by almost 2 touchdowns. The two touchdowns were the perceptions of value that gamblers felt that the Patriots had over the Giants.
This was in spite of the fact that the previous five games that the Pats had were won by just a few points a game.
Of course, if you watched it, you would know that the outcome was anything BUT what the public thought. The lesson that you could apply to forex trading is that the public is generally wrong 9 times out of ten and if you find and follow trends that you will likely profit from it.
That is pretty much it...get a good understanding on how and when fellow forex traders react and you will be able to make money with forex trading. While forex charts and studying candlesticks and forex pivot points will aid you in making trades, the real secret is understanding your fellow man, since it is the trader next to you that will ultimately tell you which way the forex market moves...see you next time.
So, how does understanding this help you?
The next time you are listening to forex news and/or trading the news, watch how the market reacts but more importantly think about how the other traders are reacting. At what point will support or resistance be hit? How drastic was the news? Where did the forex market open on the day? Where is it forecasted to close? These are all important questions to ask, especially if you are a forex day trader. Now try to get a good feel on other investors...are they unfairly inflating the numbers based on fear?
I hate to give another sports gambling example but I feel like once again it is relative. Just a couple weeks ago, the Patriots were big favorites in the superbowl...by almost 2 touchdowns. The two touchdowns were the perceptions of value that gamblers felt that the Patriots had over the Giants.
This was in spite of the fact that the previous five games that the Pats had were won by just a few points a game.
Of course, if you watched it, you would know that the outcome was anything BUT what the public thought. The lesson that you could apply to forex trading is that the public is generally wrong 9 times out of ten and if you find and follow trends that you will likely profit from it.
That is pretty much it...get a good understanding on how and when fellow forex traders react and you will be able to make money with forex trading. While forex charts and studying candlesticks and forex pivot points will aid you in making trades, the real secret is understanding your fellow man, since it is the trader next to you that will ultimately tell you which way the forex market moves...see you next time.
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