It is often discussed about the psychology makeup of forex traders but not as often talked about what are the collective group of traders psychology that shape the market as a whole. How does this heard mentality effect the market and it's trends?
In every market there are conflicting positions between buyers and sellers. It is precisely these conflicting views that define market trends. Since all generally have access to the same information, which makes the difference is the position we take each other, the majority herd mentality defines the trend and when it is about to end.
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.
At anytime a government in a country can undermine or reinforce confidence and the currency it holds. Central Banks have a history of intervention in the markets and every time in the past have been successful so far. You have to wonder what happens the one time they get on the wrong side of the trad.
All traders are following the flow of price and the reflection of that through indicators so there on certain expectations on traders as a whole on what is going to happen. The thing is in an instance the trend can change as everyone will experience the same emotions. This creates the herd. Also be aware at news event releases or sudden unexpected news as it can change the trend in an instance.
In times of more stability traders take on greater risk in hopes of big returns. Conversely, in times of high instability or uncertainty people are much more risk adverse and defense even moving out of paper currency into gold.
It is also vital to focus on the market makers and the polices of the Central banks as you rarely want to be trading against these sides. Both market makers and Central banks and to a lesser extent financial coalitions and hedge funds have the power to turn the trend quickly and you do not want to be caught on the wrong side of this action.
The forex market psychology may also be affected by potential events that have not yet occurred like 9/11 for example but normally driven by media hype, trends, market movements in a specific direction before anything happens. Finally, another factor contributing to the perceptions of traders are long-term trends where the herd mentality is most easily portrayed.
The forex market is now much more unpredictable and fluctuating than it was ten years ago. The more information you have, including the daily analysis of trends and factors that influence them will anticipate a greater chance for profit.
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