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The foreign exchange market is the closest to the perfect market model. The geographical dispersion, the high liquidity, the large number of factors that influence the exchange rates and the extremely large number of buyers and sellers are just few of the features that give forex its uniqueness. Thanks to the growing use of internet and the development of web based trading platforms, forex market increased in the past few years even more than expected.
Once you take a look at the evolution of the forex market you could not notice mass psychology that now as a more important role in the rates determination. The psychology influences forex trading in two ways: at the individual trader level and on the whole market level. The large financial implications of a trader (large sums of money that can be lost or won) create an emotional charge that could influence the trader’s decisions. In order to be a successful trader you need to know yourself extremely well and to let these emotions influence you only in a positive way. The worst attitude for a trader is to consider lost trades as a personal failure. Most successful traders have substantially more lost traders than winning trades. Don’t get stubborn in keeping losing positions just because you don’t like to accept you were wrong. Accepting that in forex you cannot be always right is the first and most important step towards an exception forex career. Mass psychology is another factor that influences the forex market. Lots of traders, mostly amateurs let themselves led by impulses and react to the rumors and market news. Let’s take for example an official announcement of an important economical indicator. If the news are worst than expected the market will lose its confidence regarding the national currency, so its rate will fall for a short time due to the traders that liquidate their positions in mass. Fortunately, the market will eventually adjust itself, so the long time positions will not be affected. As you can see, the psychology plays an important role in the forex market, so learning how it works is one of the most important aspects of learning forex trading. |
