Basic specifications of Forex traders
Forex traders, to put it frankly, are simply us: Americans, Russians, Japanese, and Chinese, light and dark skinned, civilized and not, tall and short, rich and poor, young and old. The majority of traders started Forex market trading to earn some money, and no wonder. We all always want something: a new car, a modern smartphone, the latest model of the MacBook or even the initial capital to start our own business. However, there are people that ponder the Forex market to be their interest, to kill time in the evenings, or to motivate their intellect, or as a tool to stay informed about economic news and events.
• Experience. Experience is, certainly, very important in any type of business.
• Trading style. Different traders advance different trading styles. One type might open a position for just 5 seconds before closing; another might keep a position open for weeks. Some traders risk large parts of their capital whilst others are more cautious. One trader uses fundamental analysis; the other combines 20 different methods of technical and wave analysis. Gradually you will develop your own natural style.
• Psychology. This is a very significant item, which we will look at closely in this part.
The kind of a mistake
Let’s say you wanted to create a model market, and place of exchange where all the players would have perfect, perfect knowledge and thinking. Do you know what would happen? Nothing would happen at all. The likely result reached would be the equal exchange of one resource for another – in the case of a commodity exchange, for instance.
In order to have a theoretical market (without the real commodities – in our case, currencies-being traded) that results in winners and losers, you indeed need participants that will make the following mistakes:
• sell cheaper than some sensible price hoping to buy again at lower level
• buying at immoderately expensive price hoping the market will keep on to rise
• start trading when the price is not fluctuating
• release a trading strategy
• risk an extreme part of their capital
What all these mistakes have in common is one thing: a reaction that makes you listen to yourself and not the voice of reason. It is because somebody makes a mistake that exchange rates change and some other trader makes a profit as a result. A money-making bargain for you is constantly an unfavorable one for someone else. That is if it’s money we are trading and not goods.
By the trope of money as energy can shed some light here. The law of conservation of energy for a closed system says that energy cannot rise or fall in total. It can change forms, but the total amount does not change. Likewise, money or currency does not rise or fall in total. It changes forms, from USD to JPY, to Euros, etc. Governments sometimes even increase the amount of money they print, but this does not necessarily mean that the government has more money to spend--actually, when a government does so, the value of their currency usually decreases, keeping a balance between the amount of money in circulation and the money’s real value. If this balance of conservation between amount and value did not exist, you could only print money and become rich!
Occasionally it may seem like no one is experiencing losses. This is sometimes possible in a narrow group of individual market participants (private persons). It means that a mistake has been made by one of the big participants like a big commercial bank, investment fund or a private company. It may sound impossible but it isn’t. These financial institutions are managed by people, and people are emotional creatures. Furthermore, a trader can wait until a period of uncertainty is over to trade but banks always have to keep the game going and that automatically makes it more likely they will make mistakes.
If you want to have a constant success in trading you have to block your emotions from influencing your decisions. This piece of advice sounds unimportant but that is all you really have to know about the psychological aspects of trading. It doesn’t even matter whether it is a stock market or currency exchange. You can go and buy some books about the psychology of trading so as to check this statement. You will find that much of what is in these books is waffling and filler, by means of which the author simply wants to pad out his material in order to write a book to earn some money. The rest of these books may help you but in the end you will realize that their content was just this simple principle spread over hundreds of pages.
Written by learn forex division