Imagine a trader who expects interest rates to rise in the U.S. compared to Australia while the exchange rate between the two currencies (AUD/USD) is 0.71 (it takes $0.71 USD to buy $1.00 AUD). The trader believes higher interest rates in the U.S. will increase demand for USD, and therefore the AUD/USD exchange rate will fall because it will require fewer, stronger USD to buy an AUD.
Revenge – Traders experience a feeling of wanting “revenge” on the market when they suffer a losing trade that they were “sure” would work out. The key thing here is that there is no “sure” thing in trading…never. Also, if you have risked too much money on a trade (starting to see a theme here?), and you end up losing that money, there’s a good chance you are going to want to try and jump back in the market to make that money back….which usually just leads to another loss (and sometimes an even larger one) since you are just trading emotionally again.
You might want to consider the following example as a point of reference if you start to doubt yourself: Dr. Alexander Elder, in one of his lectures spoke about a story of an old friend of his, a private trader who was inconsistent and experienced periods of wins and losses alike. In a couple of years this trader's name ended up on the US list of top money managers. When Elder asked ''How, what changed?'', the trader said, ''I am using the same trading strategy that I always have''. ''What changed is that I stopped trading against myself and my strategy''.
Confirmation bias is the one factor that is most common amongst professional traders. Looking for information that will support a decision you have made, even if it wasn't the best decision, is simply a way of justifying your actions and strategies. The problem is that by doing this, you're not actually improving your methods, and you're just going to keep making the same trading mistakes. Unfortunately, this can create an infinite loop in Forex trading psychology that can be difficult to break.
The first method is speculating on the direction a currency pair is going to trade, and buying or selling this pair. Traders can do this scalping, day trading or swing trading. A traders goal is always to predict the market direction correctly. There will always be losing trades as I explain in forex help tip 6, but if we enter the right trades we give ourselves the best chance of succeeding in forex.
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The blender company could have reduced this risk by shorting the euro and buying the USD when they were at parity. That way, if the dollar rose in value, the profits from the trade would offset the reduced profit from the sale of blenders. If the USD fell in value, the more favorable exchange rate will increase the profit from the sale of blenders, which offsets the losses in the trade.
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