Retail traders psychology and the market

Beginner Questions Trading Psychology
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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.

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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…

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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.

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

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This is how they work. They are very concerned about putting their investments into trading and wanting to make profit rather than losing. This is why they are apprehensive to putting their money into trading, which result in changing their psychology to become more vulnerable, or let’s say much more emotional.