Foreign exchange speculation is a psychological battle

There is an old adage on Wall Street that "there are two forces driving the market: greed and fear". In fact, greed is not a problem. Greed or not is an afterthought. Buffett also wants to make a lot of money, but his results are successful, so no one calls him greedy. Fear is the basic emotion in investing. To be precise, fear includes greed. Greed is not being afraid when you should be afraid, and not being afraid when you should not be afraid. It shows that investors lack understanding of the market and cannot control their emotions well.

Psychological contest

Weng Xuedong, an associate professor at the Central University of Finance and Economics and director of the Department of Economic Psychology in the Department of Sociology, believes that "the so-called investment activity is to increase the value of existing assets, but the profit and loss are all in one thought, so the role of investment psychology is too great. The formation mechanism of prices determines that when supply exceeds demand, prices fall; when supply is less than demand, prices rise. In actual investment, professional investors and non-professional investors have inconsistent judgments about the market. Prices rise and fall are normal things, and investors' psychological feelings in price changes will prompt them to make decisions. Because it is a virtual economy, prices will fluctuate greatly around value. On the other hand, it is difficult to accurately estimate the value of financial assets themselves, which creates conditions for price speculation. When a stock is expected to be good, many people buy it. In this warm atmosphere, the market reflects people's psychological changes, which also affects investment decisions and prompts people to continuously raise expectations. Although the fundamentals of listed companies may not change, different investors are constantly competing psychologically. When investors are pessimistic to the extreme, the stock price will rise; when they are optimistic to the extreme, they will reverse and fall. Some people will adapt to the market and change in time, while others will always believe in themselves and do not make adjustments. Since people's investment behavior is not completely rational, mature investors should not only grasp the laws of the market, but also understand the general psychological state of investors and their own psychological weaknesses, so that at different stages of investment, your mileage may vary. "

Someone in the United States did such a study, comparing foreign exchange traders with psychological backgrounds and economics backgrounds, and found that the former's operating performance was significantly better than the latter. Investment activities are fundamentally a psychological game, and it is also a process of continuous improvement of a person's personality. "The less psychological conflict, the greater the likelihood of success."

The mistake of walking with you

As one of the many foreign exchange investors in China, have you encountered the following mistakes?

1. Disposal effect - In Western behavioral finance theory, there is an investment psychological phenomenon called "disposal effect", that is, people who speculate in foreign exchange are more inclined to liquidate the profitable positions and hold the quilt positions in their hands. In other words, holding the profitable positions for too short a time and holding the quilt positions for too long. "All those who run away are dark horses, and all those who hug are garbage." This is a common problem among investors.

2. Mindset - "The market has its own cycle, an up phase followed by a down phase, and a down phase followed by an up phase. Yesterday's success may be the lesson of your failure to invest; and yesterday's failure may also be the best strategy for you to make money."

3. Cognitive Bias - New investors have higher expectations for ROI and underestimated market risk. However, experienced Huimin are prone to cognitive biases, and they tend to rely too much on their past experience and ignore new changes in the market. For example, if we find that the fundamentals and patterns of a currency pair are very similar to those of another currency pair in the previous paragraph, we think that the currency pair will follow the previous pattern, but the reality is very different.

4. Attribution preference - People often attribute successful operations to their own ability, and do not think that the market and environment give them the opportunity to make money; while attributing failures to objective market problems, always looking for reasons elsewhere, in the long run, will lead to overestimation of their ability to make money, resulting in overconfidence, and frequent trading.

5. Learn to short positions - Few remitters experience the joy of short positions. Many remitters have to hold positions with some money in their hands or accounts. In fact, sometimes short positions are the best strategy.