Metaphors, Forex And Trading

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In The Psychology of the Foreign Exchange Market, the author provides the results of research into how professional traders view the markets. He utilizes various metaphors to demarcate the various standpoints. According to him, the prime metaphors used by traders are war, gambling, machine, beast, ocean, bazaar, and sports. This practice has not happened by accident. People, by way of these metaphors, arrange all the information they get and give shape to their reactions to the market.

The research mainly holds that the mindset used to observe the markets is, at the same time, a major factor that influences the trade. Someone who takes the angle of sports may feel that winning is the crux of it all, but may also take it hard when faced with a loss. While on the other side you might have a person who looks at like an ocean, and who takes in to account only long-term variations. There are many who see the whole thing like a war, and they make strategies that take over tick movements as if they were enemy soldiers.

The traders on the forex markets also bring in different views as per the lives they led. Engineers often try to model the market and project direction based on equations. You find doctors trying to find patterns in the price changes and diagnosing them.

Those traders who have had familiarity with the martial arts come with discipline and a way of getting a grip on your emotions. What is best? Forex trading can actually equalize all of these viewpoints. Simply put, it is very subjective.

There is one occupation that can give great insights into the markets. And this profession is music because markets too have their harmonies and rhythms. The word harmony is defined by the English Language dictionary as an orderly and congruous arrangement of comprising sections. What is most interesting is that you don't need an in depth knowledge of music to recognize a harmonic set of sounds or a cacophony of noise.

More experienced forex traders focus less on applying more indicators as they become familiar with the inherent rhythm of the market. However, the new players on the trading floor have to find a way to detect the innate harmony of the markets and often they look to technical analysis for answers. Analogies based on music can find you a way through the noisy data.

There is one time period that is characteristic of the trader. It can be daily, hourly, or even tick-by-tick. They form their trades after seeing the charts and applying analytical toolkits on them for insights. This method of gauging the markets may be good enough but one more way is to allow you to be picked out by the time period.

Think of how you end up choosing radio station when you are driving. You listen to a bit of every station till you hear something nice , all with the help of the scan switch. You don't have to have a list of the songs that every station is going to churn out next. A forex market is also relentlessly shelling out patterns at you in a similar way.

Sinusoidal patterns might emerge to the eye of an engineer who might detect the underlying simple harmonic motion and its resonant frequency. The next thing that he might do is use a correct equation that will log its path. Yet, a person versed with music would never need an equation to gauge that the pattern has a melody with a recurrence in tones. It doesn't matter if the vibrations are from a string or violin or from the output of dealings between buyers and seller's the result is a clearly identifiable non-random series of self-similarity.

The forex trader has to see that the currency prices are nonlinear, being the results of human behavior and expressive interactions, and this is important as one needs to go past the existing linear views of trading. By letting our horizons widen regarding the inherent nature of the market, you let yourself become alert to the repetitive patterns that are nested within the data. The flair to get the 'trading edge' is greatly dependent on the way it is searched for. Patterns in the market and also its internal rhythms are what you should be looking at.
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Metaphors, Forex And Trading

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This article was published on 2011/02/16