ANALYSING THE MARKET'S PSYCHOLOGY...

What Does Market Psychology Mean?
The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.

Investopedia explains Market Psychology
While conventional financial theory describes situations in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.

Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction

Ok... Let's begin. In laymen term - Market is the market and there is nothing we can do about it. Nothing at all. The big question that we need to know is...

WHO ARE THE MARKET PLAYERS?

- The Central Banks?
- The Feds?
- The Institutional Traders?
- The Brokers?
- The Retail Traders?
- The Fishes... you and me...

The next questions then...

What do these people have in mind and what's their next move?

What causes the market to rally or remain static during certain period of time?

Are they thinking that the USD is undervalued? Or perhaps the Euro is overvalued? What about the Yen? The Swiss and the Cables?

Being a technician in this market is surely one of the easiest way to read the 'what's next' simply by analyzing the Candlesticks, Moving Averages, Stochastic, RSI, CCI and whatever indicators that you choose to apply.

But then, the real movers of these prices is a direct consequence on what these big boys and the majorities are doing, regardless of what the signals tells you to believe.

This is where most new traders, or the fishes fall as prey. The failure to read the market from the bigger perspective, and the tendency to enter the market when the big boys are not around. Yeah sure trend is your friend, but not the market. The market is full of "robbers" who have no mercy upon you and your account.

The point here is... I am trying to share my views that we, yes you.. and I are simply the small fishes in this market, at least most of us... we can't move the market but we can take advantage if we're able to read, analyze and anticipate the movement by reading the market's psychology correctly.

The reason I'm sharing this is because there are just too many trades that I personally tend to become emotionally attached when I got it wrong, no matter how rational am I when the position was opened. To hold or to pull out... which one? It's not easy... Why? Let's see...

1. At times, when you pull out prior to hitting your stop loss, the market later reverse and went even beyond your entry without even touching your stops. Sounds common huh! Why the hell did I pull out? I should have trust my trade... but surely it's too late to regret.

2. Another instance, you insist on discipline and stick to your stops as planned. The stops are hit and that seems to be the lowest/highest point of the day. Haha... Another frustration! I should have move the stops a little bit just now. Again... it's too late to regret.

3. Later, you thought this is the best... no stop loss at all. When the trades go wrong, you ride the losses up to a point of no return. Just imagine those who went short on Euro at the 1.4000 price level... Where are they now? minus 700 pips... phew... Will it ever come back? When? And yeah, if you didn't get the margin call... otherwise those positions have been long gone under the oceans... of course together with your account... ;)

So, now we go back to the trading school of thought in which the old timers has always remind us that...

TRADING IS AN ART... IT'S NOT AN EXACT SCIENCE... Bro...

Hold this principle by heart and you won't question when any of the above situation hits you.

So, the way I'm doing it now.... as per my latest fundamental market approach's revision...

1. Stop Loss is a must, regardless of how small or big the value is... say USD500 converted to 100 pips will allow me to have a 5 mini lot position (USD5 per pips). The reason is, we just don't know when the big waves could hit the market, without it, you're like having free-sex without protection. So, always say NO to NO Stop Loss...

2. Always stay out. I knew that there is no way for me to get it right all the time so regardless of what my technical system tells me what to do - buy or sell - I have a built-in system within me that tells me to stay out most of the time, the one that lock-out the adrenaline rush. Only when this internal signal tells me that I am ok to trade then only will I check on what the technical system is telling.

3. I watch closely my timing now. Asian Sessions are trad-able but not as good as London Session. Monday is tricky as well as Friday. But not to trade on Friday is kind of wasted opportunity since lately big moves did happen on Friday. You just have to be extra careful. One more thing, I enter only at 15 Minutes to 1 Hr interval... not anything in between.

4. Still relate to timing, Economic News Release is of prime importance to my trade now cause it is time when big players are around where we should take advantage of. Nevertheless, it is easier to trade when there are no big news around. For this week... with interest rate of Feds, BOE and ECB plus NFP on Friday, I just knew that it is not a time to play around.

5. The Japanese Candlesticks. This is indeed the easiest way to see on what the crowds are doing. Study the Monthly, Weekly, Daily, 4 hrs as well as 1 hr candlesticks in terms of price action, especially the direction, volume and momentum. The 15M and 5M are used mainly for my entries but the hourly and above are used to get the general psychology of the market.

6. System-wise, still holding on to my old KF indicators plus the Black Dogs (I call it BD) principles. I do not rely on those arrows blindly but using its 50 & 15 EMA's concept to my advantage. Guys, i don't care what others say, but these two work so well for me...

7. My simple thought always tell me... Join the strong one, but of course, time your entry well.

In short, you need to know and believe that trading is not easy and it's not a fair game either. Unlike us the traders, the house (ie Broker) always win. But using the right tools and statistics in anticipating what the next move could be... chances are we could always turn the odds in our favor... especially with some smart risk management applied in each trade.

Otherwise, trading forex purely based on hopes and wishful thinking will probably give you some profits initially, but surely will not make you survive in the long run... just like gamblers... And I am very sure about this...

Have A Good Trading Week...