The root cause of the failure of most foreign exchange traders

foreign exchange marketIt is such a market: a large group of people of equal intelligence, facing roughly the same market information, using roughly the same analytical and predictive techniques, and following the generally accepted trading rules, play a zero-sum game. The result is that there are a few experts who start from thousands or tens of thousands of yuan and accumulate wealth of tens of millions or even hundreds of millions of yuan, and there are also people who always make small profits and lose a lot until they lose their money. They still don't know where they failed. For most small investors, they are even more disadvantaged: they have limited experience and have to pay a considerable tuition fee for every trap they have not encountered; they have limited capital and often have just entered the foreign exchange market and have run out of ammunition; they are also at a disadvantage in terms of data possession. Therefore, the general public is often the victim of the bottom line in this fascinating zero-sum game.

The purpose of this section is to inform the public of the root cause of their failure. In a sense, the losers in the foreign exchange market are often not unable to defeat the market, but unable to defeat themselves.

One of the psychological misunderstandings is to rush to places with many people

Psychological Misunderstanding No. 2: Losing luck and winning greed

Psychological Misconception No. 3: Superstition about foreign objects rather than the market itself

One of the psychological misunderstandings is to rush to places with many people

Blind obedience is a fatal psychological weakness of the public. As soon as an economic data is published, a piece of news suddenly flashes out, and as soon as the 5-minute price chart "breaks through", they scramble to jump into the market. I'm not afraid that everyone will lose money together, I'm afraid that everyone will make money, only they won't make it.

Remember that during the Gulf War in 1991, when the pre-war situation was slightly tense, the dollar rose sharply, and foreign currencies fell sharply. On the day of the war on January 17, almost 100% of investors jumped into the market to sell foreign currencies. As a result, foreign currencies rose sharply all the way. After the list was caught, they all waited confidently for the market to turn back, and the result was naturally heavy losses.

Wars and turmoil are conducive to the strengthening of the dollar. This is a basic principle. Why does it suddenly fail? The public often makes the same mistake in the market, and sometimes the prices of different financial companies are almost the same, so that everyone suspects that the market has a pair of eyes on them.

In fact, the market is fair. With the current daily trading volume of nearly a trillion dollars in the foreign exchange market, it is difficult for any individual to manipulate. Since September 1992, due to the European currency crisis, market speculators have dumped the pound, causing the pound to plunge by 5,000 points in a short period of time. The Bank of England has repeatedly intervened, and even adopted the method of raising interest rates, to no avail.

In the foreign exchange market, for investors, "don't go where there are many people" is a mantra worth bearing in mind.

Psychological Misunderstanding No. 2: Losing luck and winning greed

Price fluctuations can basically be divided into an upward trend, a downward trend, and a disk trend. You can't make orders against the trend. If a counter-trend order is stuck, you must not make additional orders to try to lower the average price. Although the general trend will eventually come to an end, you can't guess the top or bottom of the market price and stick to a certain price. The top and bottom of the market price must be formed by the market itself, and once the trend changes, it is the greatest profit opportunity. Follow up decisively... Many investors know the truth of making orders, but in practice, they have repeatedly made orders against the market. It is not uncommon for a single quilt to cover hundreds of points or even one or two thousand points. What is the reason?

One important reason is that due to limited capital, regardless of the loss or profit after entering the order, the mind is disturbed by the financial gain and loss, and the ability to follow technical analysis and trading rules is lost.

Some investors often like to lock the order when they make a wrong order, that is, use a new buy or sell order to lock the original loss order. This operation method was invented by some financial companies in Hong Kong and Taiwan. It makes it easier for investors to maintain a balance when accepting losses, because investors can expect to open the order when the price reaches the end.

In fact, when investors reconsider making an order after locking the order, they often instinctively position squaring the profitable order and leaving the losing order instead of considering the general market trend. In most cases, the price will continue to go in the direction of investors' losses, so they lock it again, open it again, and unknowingly, the price of the locked order will expand by hundreds of points.

Unlock the order,DLSMforeign exchangeInadvertently, it became a counter-trend order again and again. Occasionally, I caught a rebound of one or two hundred points, and I often refused to cut the order because the price of the loss order was too far, and the loss was still increasing.

Probably every investor knows the importance of quickly cutting down loss-making orders. Novices lose money on floating orders, and veterans lose money on them. Drifting orders are the most fatal mistake among all mistakes. However, investors still repeat this mistake again and again. What is the reason?

The reason is that ordinary investors often place orders by feeling, while experts often place orders according to plan.

Blind orders lead to losses, dejected, and nervous, knowing that the situation is over, it is still a fluke, indecisive, constantly relaxing the price of the stop-loss order, or there is no concept and plan of the stop-loss order at all, always expecting the market price to completely reverse at the next resistance point. As a result, a loss is enough to hurt the vitality.

The psychological misunderstanding corresponding to this kind of loss-making fluke is the greed for profit. After placing the order, the price is still rising, so why place an order? The price has begun to fall, and you have to take a look. When the order turns into a loss, you are even more unwilling to place an order. When you are forced to behead and go out, you have already suffered heavy losses.

Many people often have this experience: a losing order is delayed again and again, and they have lost hundreds of points. When they are lucky enough to return to a loss of only 20 or 30 points, they hope to level the commission and then appear again. When they are lucky enough to level the commission, they hope to earn dozens of points and then appear again... The result of greed is often that the market price seems to have eyes, always turning around when it is only a little bit different from the price you want to position squaring, and they never go back.

After losing a few times, they will be afraid of the market, occasionally grasping the general trend, the price is also good, but the set of ten or eight points will be nervous, and it is easy to tie the commission to earn 10 points and 20 points, the position squaring.

When you lose money, you refuse to give in to the market, bite the bullet, and when you make money, you don't dare to win like stealing money. If this goes on, it is not surprising that you lose money.

Psychological Misconception No. 3: Superstition about foreign objects rather than the market itself

When entering the market, another major psychological misunderstanding is to believe in certain news and rumors in the market rather than following the trend of the market itself.

A few days before February 7, 1991, the Bank of Japan intervened in the market, buying yen and throwing dollars, so that the yen strengthened to around 124. Around February 7, the Bank of Japan began to intervene in the market again, and Japanese government officials also made several statements, saying that both the United States and Japan agreed that the yen would continue to strengthen, so investors flocked to buy yen, but the yen began to fall.

In this situation, investors often do not look for and believe in the reasons for the decline of the yen, but because the list of buying yen is stuck, they hope that the Bank of Japan will come to their rescue every day. As a result, almost every day Japanese officials talk about the need for a stronger yen, and sometimes the Bank of Japan intervenes three or four times a day to buy yen, but the price has been falling all the way, falling by almost 1,000 points. Many investors only made one or two orders to buy yen, and lost six or seven thousand dollars. After cutting the order, they scolded Japan for not believing in its words, but did not reflect on why they 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, and the market chose this factor, but investors couldn't believe the market itself.

Of course, it is also possible for ordinary investors to produce first-class players in the foreign exchange market. The key is to overcome psychological misunderstandings. Even traders in big banks who fall into psychological misunderstandings can't avoid losing money and are eventually eliminated by the market.

Retail investors can actually be divided into three types of people. The first is a beginner who is basically unfamiliar with the foreign exchange market; the second is a person who has a little experience in the foreign exchange market and thinks he has a unique understanding of technical analysis and basic analysis; the third is a person who has really perfected after years of careful research and practice.

The second type of people is the largest group of retail investors, and they are also the most likely to lose money. They are often overconfident that they can easily make a lot of money from the foreign exchange market using the methods they have mastered, but the result is often: they fall into the trap of the market at one time, and it is not until they lose all their money that they find themselves unable to fully grasp the most basic foreign exchange market winning skills such as "cutting loss orders quickly and making profits slowly".

There is a view that foreign exchange operations are like cooking, with similar ingredients, recipes, etc., but the cooked dishes are very different. In fact, foreign exchange operations are closer to games, like playing Go and chess. The same chess game is handled by different players, and the outcome may be won or lost or summed up. The top masters can only be a few people who can work hard and have savvy. Others have the opportunity to become good players in the foreign exchange market after overcoming their weaknesses and gaining experience, while quite a few people will eventually lose even if they have experience.

Of course, being eliminated from the foreign exchange market doesn't mean that you have a problem with your intelligence, it just means that you can't adapt to the market at present. Many talented people can also be very ordinary at chess. So if your savings are hard-earned and few, you don't have to use them all to prove that you can place an order. You know, winning a game every now and then doesn't mean being a good player in the chess world.

However, although the foreign exchange market is an esoteric opponent, you can often join in the middle of the market and wait patiently until your easier situation arises before entering. This is an excellent way to make up for your lack of skills.

It is difficult to accurately predict the trend of the foreign exchange market by relying solely on technical analysis or basic analysis. Because the factors affecting price changes are complex and changeable, there are too many unpredictable events, and it is difficult to solve problems entirely by technology and possible laws. Technical analysis techniques, some practical, some are fancy decorations, and the real winning tricks will not be easily revealed, because if there are too many people using them, it may be ineffective - in an efficient market like the foreign exchange market, it is impossible for everyone to make money at the same time.

Even practical techniques may have very different effects in different situations and at different times. For example, the point-breaking pursuit method used to be very effective more than a decade ago. Now that technical analysis methods are so common, the phenomenon of false market movements breaking points has increased a lot, and the point-breaking pursuit method will not have a chance every time.

Rather than spending energy on some flashy technology, it is better to first gain a solid understanding of the characteristics of the foreign exchange market trend, especially the behavioral characteristics of the price trend within a specific period of time.