Psychology of Trading
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Trade in opposition to the crowd - a way to make profits in the long run
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Trade in opposition to the crowd - a way to make profits in the long run

created Paweł AdamczykApril 29 2020

We all ask ourselves how to develop certain habits and a certain way of looking at the market, thanks to which we can achieve regular and repeatable profits in the long term. One thing is certain - we will not be able to predict the behavior of the market with 100% precision. However, we can change the way of thinking and learn to interpret it better, which will certainly translate into our trading.

Statistics are inexorable. In the long run, considerable most traders bear a loss. The laws of the market are ruthless, for someone to make money, someone must lose. So what to do to be in this small group of earning traders? One of the answers may be trading in the so-called opposition to the crowd.


To be in the majority, or a few words about the crowd phenomenon - READ


Trading against the majority

If you have had enough of being constantly in a group of losing money and constantly catching on the wrong side of the market, it's time to do something about it.

The main thing is to remember one basic rule:

The market is programmed to mislead you and act contrary to what it sometimes looks like.

For beginners, or for someone who has not yet learned the right approach and reading charts, it may seem that the market is playing cat and mouse with us all the time. Unfortunately, this is often the case. To better visualize this, you can use, for example, the writer's example. He creates a script to "buy" the audience in a sense. The same behavior happens on the market. "Big fish" try to mislead and influence the "crowd" so that he thinks that the price is going in one well-defined direction, and in fact the main goal is to push it in exactly the opposite direction.

If we try to put ourselves in the situation of a trader who does not invest with the crowd, we will begin to perceive markets in a completely different light. We must always remember that it is not an art to do what everyone else does. Since most lose, why should we also be in this group. We should have our own view of each transaction. We should also always pay attention to what a "crowd" can do and how it can play, as well as to use it as an additional confirmation that supports or does not support our trading decisions. Professionals know very well how they think and how they can play positions. An experienced trader can be compared to a sniper, he waits for the right conditions to support his plan, and when the chart gives him the right signal, he takes action and opens the position.

One of the basic mistakes of beginners is that they tend to buy when prices are near the top, or sell close to the bottom. This usually ends with a quick pass stop loss.

Context is important

Loss traders, unfortunately, very often make another cardinal mistake, they pay attention only to what the price is doing "at the moment", ignoring the general market context. To better illustrate all this, I have prepared two examples.

The first pair is AUDUSD. The orange line shows that the price may have suggested an upward trend. We had a sequence of higher and higher peaks and holes. However, what is worth paying attention to is the price response in the area marked with a rectangle. At one point, a nice demand candle broke out (1). At the time, most beginner traders assumed that further increases were only a matter of time. What really happened, however, was only a short break in price up, where all buy orders were activated, after which the price quickly turned back down. Then, it "extinguished" buyers' stop losses and fueled supply fuels (2).

If someone played typically on breakout did not mean that he was "Bad trader". A bad trader in this situation did not have a plan, and should have it after the reverse of the price and scenario change what actually happened. Many traders are usually so convinced of their arguments that they do not allow for the possibility of failure and an alternative scenario, they load positions often risking more than they should, and sometimes do not even use a security order, which usually leads to quick clearing of the account. If in this case you would play a long position after breaking, when you saw that the breakdown failed, the correct action was to close that position.

forex trading psychology

Chart AUD / USD, D1 interval. Source: xNUMX XTB xStation

The second example is the USDJPY situation. There was a nice upward impulse in the chart, a correction and then another attempt to go higher. Many traders have played long positions. Nobody is saying that it was a bad idea, the concept of playing with the trend is a very good concept. This is what you should do though. To disconnect from the crowd of people losing in the market, you react to the situation on an ongoing basis. We can see that the demand candle was immediately followed by a counter supply (1). An experienced trader does not assume that this is just one supply candle and after it the price will go up like crazy, but at this point, at this stage, he secures his order. As it turned out later, the price dropped much lower and those who did not have a stop loss, or who fully believed in longs, could lose much more.

forex trading psychology

Chart USD / JPY, D1 interval. Source: xNUMX XTB xStation

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About the Author
Paweł Adamczyk
A graduate of the University of Economics in Katowice. Since her student days, passionate about the currency market, stock exchange, and broadly understood investments. An active trader on the Forex market since the 2013 year. In making everyday investment decisions, in the first place puts the key aspect of the market, the price. A fan of motorization, travel and extreme sports.