The foreign exchange market is one of the largest financial markets. Those who invest in the market must first master the basics of finance, face roughly the same market data, use roughly the same analysis and prediction methods, follow the generally recognized trading rules, and make zero and games. The result is that there are not only a few masters who have accumulated wealth of tens of millions or even hundreds of millions of dollars since they were young, but also so many living beings who have always made small profits and big losses, and are always at a disadvantage in the market.
For the analysis of retail investors, the reason for their failure is that, in a sense, failure in the foreign exchange market is often not that they cannot beat the market, but that they cannot beat themselves. Often retail investors in the market have limited experience and are at a disadvantage in data possession, and become the last victim in the glamorous zero-sum game.
Blind obedience is a fatal psychological weakness of retail investors. As soon as an economic data is released, a piece of news suddenly flashes out, and as soon as the five-minute price chart “breaks through”, they scramble to jump into the market. I am not afraid that everyone will lose money together, but I am afraid that everyone will make money and only you will not make money.
The most typical case is the Gulf War in 1991. When the situation became tense before the war, the U.S. dollar rose sharply and foreign currencies plummeted. When the war broke out on January 17, data from financial companies showed that almost all investors jumped into the market to buy foreign currencies. As a result, the foreign currency market soared, retail investors were locked up in their orders, and they were all waiting for the market to pull back. As a result, the market completely exceeded everyone’s predictions and suffered heavy losses.
War and turmoil are conducive to the strengthening of the dollar. This is a basic principle. Why does it suddenly fail? The retail investors often make the same mistakes in the market. Sometimes different financial companies have almost the same prices for the orders of the retail investors, so that the retail investors suspect that the market has a pair of eyes on them. In fact, the market is fair. With the current daily transaction volume of nearly one trillion US dollars in the foreign exchange market, it is difficult for any individual to manipulate. Since September 1992, due to the crisis of the European monetary system, market speculators dumped the pound, causing the pound to plummet by 5,000 points in a short period of time.
In a sense, sometimes the market trend is misunderstood, or the market trend suddenly reverses after placing an order, which leads to the order being caught. This is a normal phenomenon, and even the masters cannot be spared. However, in how to deal with loss orders, the stupid behavior stems from the psychology of retail investors.
The development of the foreign exchange market is rising with twists and turns, but the profit and loss coexist in the market. While we have a good grasp of the profit, we should also pay attention to the strategy of losing money in the transaction.
