Retail traders psychology and the market

This is one of the things new traders don’t get.

If most people believe the market is going in one direction, then they probably have positioned themselves in that direction. Prices move because of order activity, or the lack thereof. If everyone’s already in the market, who’s left to enter orders to keep the market moving in that direction?

This is a theoretical idea, of course. You are never going to get everyone in the market all agreeing and acting as once in the same time frame. I think you can see the idea, though.

We can’t deny that market’s direction is not only same all the time but there is time that condition will become trending (bullish or bearish) and there is sideways condition too. But if you could predict the market’s movement so you can take advantage on market’s movement. Usually, strong trending will happen after sideways which has happened for long-time so you can make preparation in your technical and psychological after you looked on market’s movement.

1 Like

This post was flagged by the community and is temporarily hidden.

I am a retail trader, thus i can understand the extent to which we think. Most of the time the money what we have is insufficient to even hold the trades in the market and moreover increased or high expectation out of the small money what we have and greediness to become rich makes us lose more and more money.

1 Like

This post was flagged by the community and is temporarily hidden.

Yes and if the trader is able to avoid making losses and realize their mistakes made then certainly they can drive their negatives into the positives and flourish in the forex trading business undoubtedly.

Yeah, I guess the most difficult part is just to be able to stick to a pre-set trading plan.

Also, I’m wondering if the point of the optimal trading mindset includes getting rid of the emotions, why are robots not already better than humans at trading?

All of us think optimally as we less plan for risk but think more about profits . Greediness can not bring profits it is just possible with their right trading decisions. not see to any other options for earning as robots or shortcuts or hiring non trusted traders . Simple psychology is to think for a normal business having high risks that will give just low % of safe profits.

Yeah but that’s not so appealing. Scammers can “succeed” with aspiring traders because the promise of profits is more important to people than anything else. Also, it’s not in the interest of any brokerages to reveal how little part of all traders makes actual profit.

There is no correlation between the retail traders and market movements. Market is changing according to the changes in the world economy, significant momentum around the world. It is not that retail traders are the only sufferer. To ensure success, it it is the responsibility of retail trader to carry out market analysis.

Why is it then that IG Index (among many others I have no doubt) - USE the open positions of their own retail customers as a reverse indicator of market sentiment ?

I don’t really understand why retail traders’ psychology should be applied here and actually what makes it different from market here. I would say that there is a market which is created by a lot of influencers, and if you want to be successful you to adjust yourself to it.

1 Like

Retail Traders are more about making quick money for the day. The movement of the market is heavily dependent upon what happened and what is going to happen and retail traders don’t have that kind of influence or money .

I think that the market still depends more on big players who do what will be more profitable for them at one time or another.

The movement in the market to me is a function of demand and supply and not any manipulation.

1 Like

“Is the market manipulated”?
ABSOLUTELY IT IS and many large banks have been fined for doing exactly that!

If you want some advice that could transform your trading, it would be, AVOID THE DOLLAR PAIRS! :wink:

Of course price responds when a large participant uses a large amount of money to buy a certain currency. This could be contrary to the underlying fundamentals of that currency, so the effects must then be limited and temporary: or aligned with the currency’s fundamentals, in which case they tend to exaggerate the impact of the fundamentals.

None of this is aimed at private retail forex traders. Banks compete with banks for both profit and market share. The entire private retail forex trader universe does not have enough money to make it worthwhile for a bank to drive the forex market in a new direction.

Otc is… over the counter so tjere iscno one central institute to controñ tje pricecso big boys) institutional, hedge, and banks moves the market
And the brokers the same they are attached to liquity providers like big boys, and this brokers have another price and in many csses they will put the orders against you…

I DO know the answer to the original posters question.

And it’s nothing to do with manipulation or retail money able or not able to move markets.

It’s to do with mass psychology, contrary opinion, or sentiment.

Retail traders as a group are the worst possible market timers.

In fact, most retail traders are not real traders at all. They hear about the market and decide to jump on board because:

CNBC has talked about it.

They know someone making oodles of cash with it

Their financial advisor recommended it.

Or any other silly reason.

Most of these retail traders do not have a strategy at all - let alone the ability to stick with it.

There are a number of indicators that help determine the psychology of the retail trader - most are in the stock market.

In the currency market, the most widely used is the COT.

In the COT the report is broken down into trading funds, hedgers, small traders, and swap dealers.

It’s the small traders who are the longest at market tops and the shortest at market bottoms.

In the stock market, there is the Put/call ratio.

Other ways of analyzing retail sentiment are margin debt or odd lots.

There is a legendary story of Joe Kennedy who went to get his shoes shined just before the 1929 Wall Street crash.

The young lad shining his shoes gave him a stock market tip - after hearing this Joe immediately sold out all of his stocks.

Cab drivers are the new ‘shoe shine boy’ indicator. If you get in an Uber and the driver tells you it’s time to buy gold, it’s a good sign Gold has topped or the Dollar has bottomed.

This recent article from Zerohedge illustrates my point.

2 Likes

Retail traders are usually emotional. Most traders are very apprehensive about their investments. And it is almost impossible to maintain discipline.