Becoming a successful professional foreign exchange investor is not an easy task. What you need to cultivate is long-term, sustained, and stable profitability. From this point of view, short-term success does not explain the problem.
J·P Morgan said: "If you want to become a currency expert, you must first become a self-controller."
Entering the advanced tutorial, you need to re-recognize yourself, establish a trading decision-making system that suits your characteristics, and trade according to the system. Strictly follow this advice to ensure that you will not lose even worse after short-term success!
Lesson 1: Psychological behavior analysis of the foreign exchange market
The foreign exchange market is such a market: a large group of people with equal intelligence, facing roughly the same market information, using approximately the same analysis and forecasting techniques, following the generally accepted trading rules, and playing a zero-sum game. As a result, there are a few masters who have started from thousands or tens of thousands of dollars and have accumulated a wealth of tens of millions or even hundreds of millions.
For most small investors, their situation is even more disadvantaged: they have limited experience and have to pay a considerable tuition fee for every trap they have never encountered; capital is limited, and they often enter the foreign exchange market and have already run out of bombs. There is no food; the possession of information is also at a disadvantage. Therefore, the general public often becomes the bottom victim in this glamorous zero-sum game.
The purpose of this section is to tell the public the root cause of their failure. In a sense, the losers in the foreign exchange market are often not incapable of defeating the market but incapable of defeating themselves.
(1) One of the psychological misunderstandings: rush to the crowded places
Blind obedience is a fatal psychological weakness of the public. As soon as economic data is published, a news item suddenly flashes out, and as soon as the 5-minute price chart "breaks through," it jumps into the market eagerly. I'm not afraid that everyone loses money together; I'm so scared that everyone makes money and only oneself does not.
I remember that during the Gulf War in 1991, the situation before the war was tense. The U.S. dollar rose sharply, and foreign currency fell sharply. On the day of the war on January 17, almost 100% of investors jumped into the market to sell foreign currency. As a result, the foreign currency rose sharply. After being trapped, they invariably waited for the need to return with confidence, and the result was naturally heavy losses.
War and turmoil are conducive to the strengthening of the US dollar. This is a fundamental principle. Why does it suddenly fail? The public often makes the same mistakes in the market. Sometimes the prices of different financial companies' orders are almost the same so that everyone suspects that the market has a pair of eyes fixed on them.
The market is fair. With the current daily trading volume of nearly one trillion US dollars in the foreign exchange market, it is difficult for any individual to manipulate. In September 1992, due to the European currency crisis, market speculators threw the British pound violently, causing the pound to plummet by 5,000 points in a short period. The Bank of England repeatedly intervened and even increased interest rates to no avail.
For investors in the foreign exchange market, "Don't go where there are many people" is a motto worth remembering.
(2) Psychological Misunderstanding 2: Losing one's chance of being lucky, winning one's greed
Price fluctuations can be divided into an upward trend, a downward trend, and a market trend. Orders are irreversible. If the contrarian order is locked up, you must not add additional charges to lower the average price. Although the general direction will come to an end, you should not speculate on the top or bottom of the market price and stick to a specific price. The market itself must form the top and bottom of the market price, and once the trend is started, it is the most significant profit opportunity. You must decisively follow up. Many investors know the truth of these orders. However, in actual operation, they have repeatedly made orders against the market. It is not uncommon for a single sheet to cover several hundred points or even one or two thousand points. What is the reason?
An important reason is that due to limited capital, regardless of loss or profit after entering the order, the mind will be disturbed due to financial problems. The ability to follow technical analysis and trading rules has been lost.
Some investors often like to lock the order when making a wrong order, that is, to close the original loss order with a new buy or sell order. This method of operation was invented by some financial companies in Hong Kong and Taiwan. It makes it easier for investors to maintain a psychological balance when accepting losses because they can expect to open orders when the price ends.
Investors often instinctively close profitable orders and leave loss-making orders when they reconsider placing orders after locking the order instead of considering the general market trend. In most cases, the price will continue to move towards the investor's loss, so it is locked and opened again. Unknowingly, the cost of the closed order has expanded by a few hundred points or several hundred points.
Unlocking orders, unintentionally, has become a contrarian order again and again. Occasionally, the rebound of one or two hundred points is accurate, and the price of loss-making charges is often too far away, and the loss is still getting bigger and bigger.
Probably every investor knows the importance of cutting down losing orders quickly. Novices lose money on floating orders, and veterans lose money on this. Floating orders is the fatal mistake of all mistakes, but, Investors still repeat this error time and time. What is the reason?
The reason is that ordinary investors often place orders based on their feelings, while masters often place orders as planned.
Blindly placing an order leads to losses, sad and nervous, knowing that the general situation is over, still in a fluke mentality, indecisive, constantly relaxing the stop-loss order price, or there is no concept and plan for the stop-loss order, always expecting the market price to be entirely at the next resistance point Turn it around, and the result is that one loss is enough to hurt your vitality.
The psychological misunderstanding that corresponds to this kind of loss-making luck is that profit-making becomes greedy. After placing a buy order, the price is still rising; why place an order? The price has begun to fall. You have to take a look. When the order turns profitable, it is not reconciled to issue the order. By the time the order was forced to be beheaded, it had already suffered heavy losses.
Many people often have this kind of experience: the list of losing money has been delayed repeatedly, and it has lost hundreds of points. When luckily returns to only 20 or 30 points, expecting to tie the commission and play again, and when luckily able to connect the commission, expect to earn dozens of topics before going out. The result of greed is often that the market price seems to have eyes, constantly turning around when it is just a little bit close to the price you want to close and never going back.
After losing a few times, I will be afraid of the market. Occasionally I catch the general trend, and the price is also reasonable. However, I get tense after 10:8. It is easy to tie the commission and earn 10:20. The position is closed in a hurry.
Unwilling to give in to the market when losing money, biting the bullet, and not dare to win as if stealing money when making money. If this continues, it is not surprising that the capital will be lost.
(3) The third psychological misunderstanding: superstition in foreign objects rather than the market itself
When entering the market, another major psychological misunderstanding is the superstition of certain market news and rumors, rather than obeying the market's trend.
A few days before February 7, 1991, the Bank of Japan intervened in the market, buying Japanese yen and dumping US dollars, which strengthened the Japanese yen to around 124. Around February 7, the Bank of Japan began to intervene in the market again. Japanese government officials also made several statements, saying that the United States and Japan agreed that the yen would strengthen. Hence, investors flocked to buy the yen, but the yen began to fall.
Under this circumstance, investors often do not look for and believe in the reasons that pushed the yen to fall, but because they have been trapped to buy yen, they look forward to the Bank of Japan to rescue themselves every day. As a result, almost every day, Japanese officials talk about the yen should strengthen. Sometimes the Bank of Japan also intervenes to buy yen three or four times a day, but the price has fallen all the way, with a drop of almost 1,000 points. Many investors only make one or two. I lost six to seven thousand U.S. dollars on the Japanese yen order. After cutting the order, I cursed Japan for being unbelievable, but I didn't reflect on why I lost so much. It is not the Bank of Japan that makes investors lose money, but the investors themselves. Because at that time, the yen was politically unstable due to some scandals. The market chose this factor, but investors could not believe the market itself.
Of course, ordinary investors may also produce first-class players in the foreign exchange market. The key is to overcome psychological misunderstandings. Even traders at large banks who fall into psychological misconceptions will inevitably lose money and eventually be eliminated by the market.
There are three types of retail investors. The first is for beginners who are new to the foreign exchange market; the second is for people who have some experience in the foreign exchange market and think that they have a unique experience in technical analysis and fundamental analysis; the third is for people who have been caring for many years Those who have studied and practiced, are indeed proficient.
The second group is the largest group of retail investors and the group most likely to lose money. They tend to be overconfident that they can easily make a lot of money from the foreign exchange market using their mastered methods. Still, the result is often: They fell into the trap of the market once, and only when they lost all their capital did they find that they had not thoroughly mastered the most basic winning techniques in the foreign exchange market, such as "cutting loss orders faster and averaging profit orders slower."
There is a view that foreign exchange operations are like cooking. The raw materials, recipes, etc., are similar, but the dishes produced are quite different. Foreign exchange operations are closer to games like Go and Chess. Other players handle the same game, and the outcome is either win or loss or tie. There are only a few top masters who can work hard and have savvy skills. People. Another group of people can become good players in the foreign exchange market after overcoming weaknesses and gaining experience. Quite a few people will eventually lose even if they have experience.
Of course, being eliminated by the foreign exchange market does not mean that you have intellectual problems, but only that you are currently unable to adapt to this market. Many talented people may have ordinary chess skills. So if your savings are hard-earned and few, you don't have to use all of them to prove that you will place an order. You know, winning a chess game occasionally does not mean that you are a good player in the chess world.
However, although the foreign exchange market is an unpredictable opponent, you can often join mid-market and wait patiently until a situation is more manageable for you to grasp before entering the market. This is an excellent way to make up for your lack of skill.
It isn't easy to make accurate predictions of the foreign exchange market trend solely relying on technical or fundamental analysis. Because the factors that affect price changes are complex and changeable, there are too many unpredictable events; it is challenging to solve the problem entirely by technology and possible laws. Some techniques of technical analysis are practical, and some are fancy furnishings. I am afraid they will not be revealed quickly because more people use them—in an effective market like the foreign exchange market. , It is impossible for everyone to make money at the same time.
Even if it is a practical technology, its effectiveness may vary significantly on different occasions and other times. For example, the break-point pursuit method was once very effective more than ten years ago. Now that the technical analysis method is standard, the phenomenon of false breakpoints in the market trend has increased a lot, and the break-point pursuit method will not have a chance of winning every time.
Instead of spending energy on some flashy technology, it is better to understand the characteristics of the foreign exchange market movements, especially the behavioral attributes of price movements within a certain period.
Continue to study the following article: Forex advanced tutorial: Lesson 2