PSYCHOLOGICAL BIASES WORKING AGAINST POSITIVE TRADING RESULT

 Psychological biases is an opinion or feeling that strongly favour one side or an item in a group or series. Psychological biases cannot be overruled in the trading lifestyle of a forex trader.

All traders no matter their level of expertise and experience on the job are prone to battle this monster every day while trading the forex market. Biases occurs in trading due to greed and fear demonstrated by traders when placing a trade, or in a trade.

There are basically four types of biases a forex trader must combat on a daily basis in the forex market viz:

a)     Anchoring Biases

b)    Loss Aversion Biases

c)     Confirmation Biases

d)    Overconfidence Biases

Let’s look at these biases briefly in turn:

ANCHORING BIASES

Anchoring biases stems from the tendency to feel or belief that there will be a similar market or trading situation in the future. Traders anchors on the existing state of affairs and base their judgement on what is happening now for what would happen in near future. They are trapped to believing that the market will respond to a particular assumption. Anchoring bias premise on the fact that the trend in reverse form.

LOSS AVERSION BIASES

This results from FEAR. The primary focus of a trader trapped in Loss Aversion Biases is the pain of losing. Holding on to losing positions threatens the performance of a trader thereby keeping them out of more beneficial trades.

CONFIRMATION BIASES

Confirmation biases is related to the information a forex trader have concerning a currency pair. Here, seekers are not ready to or willing to critique their analysis. In the end, they trade against the trend.

OVERCONFIDENCE BIASES

It is a notion that a trader exhibits by simply believing that he had paid his or her dues and that with his or her accumulated wealth of skills in forex trading he or she cannot lose in the market. Trader having this bias are susceptible to placing large trades too risky for their trading account to accommodate.

Comments

Post a Comment

Popular posts from this blog

HOW TO INTERPRETE THE NEWS TO MAXIMIZE PROFIT TECHNICALLY

In the Forex reports there are 3 statistics to make use of: ü Previous ü Forecast ü Actual When the Actual outcome is greater than the Forecast outcome it means a more positive situation for the country’s economy. So you go long in agreement with Moving Average Crossover prediction of the Price. On the contrary, the opposite occur when the actual outcome is lesser than forecast digits. This indicates a negative economic situation for that economy, so you will go short in agreement with Moving Average Crossover prediction of the Price. In a situation where there is equal outcome you stay out of the trade and wait for the next high impact economic report. It is worth mentioning that you need    to take into consideration the variance in the statistics released so as to have a desired result. If there is a wide difference in figure released reversal is sure to set in and mop up the gains, so the market will not trend well as expected. Do not stay more than Fiftee...
Read more

HOW TO TRADE THE NEWS TECHNICALLY TO EARN MASSIVE PIPS

News is a tool in the hand of a fundamental trader however a Technical trader can maximize its usage profitably by riding on the trend to rake in a mind-blowing profit during the moments of momentary surge in the action of the market prices. In the original parlance of the business, this style of trading is regarded as scalping. What we are aiming at is scalping the news with a degree of confidence. To earn a massive profit the following should be taking into consideration: a)      Central Banks Calendar b)     Economic Calendar c)      Risk Management Instructions: Go to www.forexfactory.com set the clock to read your time zone and save the settings. Revert to the economic calendar you will see a three levels of news impact viz:         i.             Low: Yellow       ii.     ...
Read more

SIGNIFICANT LEVELS OF RISK MANAGEMENT

   There are two major significant levels of risk management which must be practiced and managed with each trade a trader implements. ·         Capital Protection ·         Profit Protection Capital Protection Capital protection is ensuring of the security of trading capital via strategies tested, proven and guaranteed to produce the expected outcome. The idea of capital protection is a sound ethical trading practice that underlies the concept of money management. Capital protection seeks to imbibe in trader the defensive art in forex trading enterprise. Generating returns is important but not the bases of capital protection, though we seek to make as much as possible profits for each trade. The trading phrase-”cutting your losses and let…ride” is the bedrock or forex trading profit maximization tactic. Cutting loss before trading and not as soon as the trade goes against a trader is the focal p...
Read more