Forex Market Psychology

7. Markets are very complex and are constantly changing

Written by forex

Alan Greenspan at the opening of the Symposium under the auspices of the Federal Reserve in Kansas city on August 29, 2003 said: “Uncertainty is not just an important feature of the monetary policy landscape; it is a defining characteristic”.

He said that a macroeconomic model is greatly simplified. Indeed, the economy is complicated. There are so many forces and variables, known and unknown, affecting the economy, that everything cannot be taken into account.

The economy is not the only complex system. Complex systems are widespread in nature. Ancient philosophers, such as Heraclitus of Ephesus, long ago made this observation. All of the elements of the world, like time, fire, water, earth and air are constantly in a state of continuous change and, figuratively speaking, it is impossible “to step twice into the same river”. Nature constantly divides and reunites itself. The market is no exception. You will never be in exactly the same river (the market), which was sold before. It may look the same but will be different. The flow will be faster or slower (volatility); it will be deeper or shallower (volume); water is more pure or turbid (visibility). There are thousands of variables, and almost none of them comprehensible.

But do You think what is the biggest variable of all that You are likely to feel permanent? As aptly put Pogo: “We have met the enemy and it is ourselves!” Your psychology is also constantly in a state of continuous change. You are happy today and tomorrow melancholic; You need to continuously learn new things about the market and forget the others; your confidence wavers and expands like a river. When You come to a commercial place, something went wrong or was everything okay? As the road? What was the mood of your fellow trader when You came? How was your first deal?

All moves, regardless of whether we see it and whether to measure it. This understanding is especially important for system developers or traders using black boxes. This helps to explain why some programs work well for very long. There are many other reasons for these phenomena, but the interaction of changing market forces, of course, plays a major role.

How can you deal with constant change? First of all, always be on the lookout. Expect them. Accept it as the norm. Second, protect your profits from sudden destructive actions. Risk management, like stop losses is vital. Constant vigilance can make a difference; a healthy skepticism can save lives. Third, constantly study a specific market in which You trade. Develop a passion for trading. Work on the formation of myself as a Zen trader, when You become one with the market and feeling its movement as if floating in the river. None of these approaches is not easy, but without them become a successful trader.

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