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3 Forex Traders’ Inner Enemies: Fear, Greed, Bias
Many a times through your trading career, you might have come across several literatures and trading manuals that would give you an insight into successful strategies, interesting ideas, emphasize the importance of stop-loss or give you endless advice on how to read the charts for the right understanding of your trade or simply a lowdown of the top 50 tips that can make you the most surprising currency trader. But then, why isn’t everyone George Soros?
What is it that sets him apart?
Well, it is the mind, it is your trading psychology and how well you can discipline your mind, rein in your emotions and get a grip on pure number crunching.
The psychological aspect becomes really important as the trader keeps darting in and out of positions and loss of objectivity can really cloud decision making. Emotions can almost never get into the way of successful trading.
Many forex traders believe that if they could completely divorce themselves from their emotions, it could improve the success rate. The best approach is to understand yourself, reading your own mind better. Identify your strong points and weaknesses and decide on your unique trading approach even if that does not confirm with the norm.
Understanding Fear
Perhaps the biggest challenge for any forex trader is to accept their biggest fear, the fear of loss. What happens if your trade reverses, what happens when your trading screen is a sea of red? It is not unusual for a trader to be scared and sometimes during a situation they might act in haste or without thinking it through properly.
They might even liquidate their entire holding or refrain from taking further risk. But by doing this, a trader is also shutting the door to the potential profit going forward.
Another important factor in tackling fear is considering and accounting for every possibility. So if, you already have it figured out about dealing with a possibility of complete wipe-out, in case the eventuality actually presents itself, you are not taken by either surprise or indecision and at times it could even work out better for you.
You might even catch a window of opportunity as a result of calm and collected plan of action. Most importantly you can stave off your biggest enemy, and that is fear. Once you overcome fear, the rest will follow.
Dealing With Greed
Greed is the next big demon you need to tackle. The want to excel, exceed expectation and eke out hidden opportunities is a human tendency and you can’t really blame anyone for wanting to do so but can you really afford to. If you are a forex trader, my answer would be no.
Let me share a small anecdote I read about a guy who hit the jackpot in a casino in Las Vegas. You might think what more can he want, he has already amassed a big fortune in a matter of minutes; it is time to go home and enjoy. But, greed is an evil demon. This guy was tempted to try his luck again, who knows if he hits the jackpot again. But our man reined in his greed, took a cab, put the money in his hotel safe, put the keys under the bed and slept off.
Well, you might think what’s so special about this incident and the reason I use this reference. Well, this man practiced something that every forex trader needs to incorporate in their daily schedule. Greed is a basic human instinct and the want to wait for one last tick, who knows; it might be a game changer is a deadly temptation. A trader needs to identify this trait and develop his trading plans in a way that greed does not mar the profit prospects.
Rational business decisions without emotions and whims hold out the possibility if a much higher success rate and long-term sustainability compared to sudden impulsive trade. As the old saying on Wall Street goes, ‘pigs get slaughtered’ and this can go a long way in resulting in a complete collapse if not handled with care and foresight.
Battling Bias
There are some commonly noticed biases that forex traders are most susceptible to:
1. Overconfidence Bias: This comprises of a disproportionate conviction in one’s trading skill and a belief that you can never fail. This can result in traders risking too much in one trade or overlooking obvious warnings. A strict self-management program can be instrumental in instilling trading discipline.
2. Anchoring Bias: When a trader shuts his/her eyes to the prospect of change in future and believes that the current set of circumstances would continue till infinity, you should know that there is trouble in heaven. Traders tend to lose money as they prefer bucking trend based on their beliefs more than empirical evidence. Keeping a check on charts and tracking daily movements keenly is the best way to be in sync with reality.
3. Confirmation Bias: It is a situation when a trader forms a set of beliefs and only looks for evidence to confirm to these in isolation without taking into account the related information and events. This results in the formation of ill-conceived trade and significant losses. An open mind and exposure to diverse perspectives are the best bet to deal with this situation.
4. Loss Aversion Bias: When fear is the primary motivator for your trading strategies, you should be warned. These kinds of traders are more likely to hold on to losing positions compared to those who are ready to incur short-term losses for bigger gains. Keeping a strong line of stop loss with rigidly adhering to them is a way to keep this tendency at bay.
Good luck
"Whether you think you can, or you think you cannot, you are right." - Henry Ford
Source: Luck Scout
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Forex - Dollar Shrugs off Upbeat U.S. Housing Data as Stronger Euro Weighs
Investing.com – The dollar came under pressure Monday, shrugging off upbeat U.S. housing data as a stronger euro weighed on sentiment.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.42% to 94.07.
The housing sector, meanwhile, showed a little resilience as the National Association of Realtors’ pending home sales rose 0.9% to 106.9 in June, ending two consecutive months of declines.
"The trend in (pending home) sales is flat, and the mortgage applications numbers point to a modest decline over the next few months, as higher mortgage rates and tighter lending standards bite into demand," Pantheon said in a note to clients Monday.
"The June pending sales index suggests that July existing home sales will rise slightly, to about 5.45 million."
The better-than-expected housing data arrived as investors eagerly await a slew of updates on monetary policy from a trio of central banks this week, including the Federal Reserve on Wednesday.
The Federal Open Market Committee is expected to vote to leave interest rates unchanged on Wednesday, but market participants are expected to closely parse the accompanying statement for any tweaks in language on monetary policy.
"Wednesday's FOMC meeting is going to be a non-event as the Committee is not expected to raise rates or alter the balance sheet normalization schedule next week, though there's a risk of a change in language contained within the statement," BMO said last week.
Elsewhere, a stronger euro and pound held back performance as the latter pair rose on above-forecast UK mortgage data ahead of the widely expected Bank of England interest rate hike due later this week.
GBP/USD rose 0.24% to $1.3138, while EUR/USD rose 0.49% to $1.1715 as Eurozone consumer confidence met expectations.
USD/JPY fell 0.05% to Y110.97 as the Bank of Japan conducted its third operation in a week Monday overnight, buying $14.4 billion in the 5-to 10-year sector, sending yields on Japan 10-Year bond lower, weakening the yen.
USD/CAD fell 0.31% to C$1.3019.
Source: Investing
Forex - Euro, Pound Rise as Dollar Weakens
Investing.com - The U.S. dollar was lower on Monday, while the euro and sterling were higher as investors wait for a number of central bank meetings this week.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.43% to 94.06 as of 11:34 AM ET (15:34 GMT). Meanwhile, the pound inched higher, with GBP/USD rising 0.31% to 1.3146.
Investors are waiting for a flurry of central bank policy decisions this week that could determine direction of currencies. The Federal Reserve makes a policy decision Wednesday afternoon, but with no rate hike expected. Investors expect the Fed to raise rates in September, with the chance of an increase at 87.8%.
The U.S. economy accelerated as expected in the second quarter, underlining the case for the Federal Reserve to gradually increase interest rates.
Gross domestic product registered a seasonally-adjusted annual rate of 4.1% growth in the second quarter, its fastest rate of growth since the third quarter of 2014.
Other central banks are also meeting this week, with the Bank of Japan ending its two-day meeting on Tuesday. The Bank of England is expected to raise interest rates on Thursday, despite Brexit uncertainty.
The dollar was lower against the safe-haven yen, with USD/JPY decreasing 0.05% to 110.97. In times of uncertainty, investors tend to invest in the Japanese yen, which is considered a safe asset during periods of risk aversion.
The euro was higher after the dollar fell, despite the European Central Bank keeping rates unchanged last week and reiterating its plan to slowly end its accommodative monetary policy. EUR/USD rose 0.48% to 1.1713
The Australian dollar was higher, with AUD/USD rising 0.11% at 0.7408, while NZD/USD inched up 0.54% to 0.6830. The loonie was higher against the greenback, with USD/CAD down 0.38% to 1.3010.
Source: Investing
It could be a wild session for the Australian dollar today
The Australian dollar had a slow start to the week, finishing mixed against the major crosses as traders eyed of bigger events ahead.
Here’s the scoreboard as at 7am in Sydney.
AUD/USD 0.7407 , 0.0007 , 0.09%
AUD/JPY 82.26 , 0.23 , 0.28%
AUD/CNH 5.0568 , 0.0162 , 0.32%
AUD/EUR 0.6327 , -0.0009 , -0.14%
AUD/GBP 0.5639 , -0.0003 , -0.05%
AUD/NZD 1.0851 , -0.0017 , -0.16%
AUD/CAD 0.9654 , -0.0017 , -0.18%
As the scoreboard suggests, the moves on Monday were contained and largely irreverent, largely reflecting tweaks to market positioning ahead of a swathe of major economic data and central bank releases.
The key theme of the session was modest strength in the euro, helped by firm inflation reports from Germany and Spain and continued dip-buying after the common currency slumped last week. The strength in the euro weighed on the greenback, helping the AUD/USD grind higher from lows struck earlier in the day.
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