Forex Market Psychology

5. Fear and hope: Two emotions, decision-making in the market

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Fear and hope – two emotions, decision-making in the market.

The basic premise of technical analysis market prices are driven by fear and greed. These emotions influence trading decisions of whether to buy or sell. When investors fear that prices will fall, they sell.

When they are afraid that we might miss the opportunity to make a profit, they are buying without sufficient reason, according to Dr. Martin Pring (Martin Pring). Greed, by contrast, is the result of a combination of arrogance and desire to achieve profitable results in a very short time. When traders feel that it is possible to make quick and easy profit, they buy.

Dr. Shefrin Hersh (Hersh Shefrin), a prominent researcher in behavioral Finance, argues that fear and greed are not completely driven by financial markets.

Fear does play a role, but traders are showing less greed, and more hope. When traders are scared, they focus on the adverse aspects of trading. For example, during a losing trade everyone is thinking, “I Wonder how far the price can go against me? Can it get any worse? “Hope is the polar opposite of fear. When traders feel hope, they focus on the positive aspects of trade. They think, “I Wonder how much money I could make on this deal?” They are counting on receiving money instead of having to continuously worry about how much money they will have to lose.

According to Dr. Serino people are working to achieve personal or financial goals. When traders decide to enter into a deal, they hope it will help to achieve their goals. If the investment is successful, hope turns to pride. However, if the investment fails, the hope turns into fear, and fear of regret. The desire to experience the hope when evaluating investment alternatives is quite different from the tendency to experience fear, but both tendencies exist in each. Dr. Lola Lopez (Lola Lopes), however, suggests that one tendency predominates over the other. There are individual differences; some people tend to be hopeful optimists, whereas others are scared pessimists. Dr. Lopez believes that the basis for these differences may lie the need for security. Some people do not consider their environment as stable and safe. They believe that their environment can change at any moment, so they are looking for any signs that may point to changes which, in turn, can lead to instability and possibly chaos. These individuals believe that they cannot afford the volatility of the environment, so avoid this at any cost. This leads them to losses. They are constantly afraid that you may lose money. In contrast, individuals who believe that their environment is safe and stable, not too worried about potential changes or possible instability. They believe that they will be able to cope with any possible changes. It gives them the freedom to focus exclusively on the profit potential have made. They are optimists and believe that will make a lot of money. Optimally located in the middle of these two extremes. Yes, obviously emotions affect trading decisions. But remember, it’s not just fear and greed, but also hope.

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