This article looks at why foreign exchange traders will trade against the forex Australia market and the consequences thereof.
Many individuals will understand concepts more easily via the use of metaphors, so let us explain the conditions of a forex Australia market using one. Imagine you are flowing down a river in one direction – going with the flow. When floating in this direction you are carried rapidly and smoothly. However, when you move in the opposite direction you find yourself fighting the waters putting more effort into your movement. You will find yourself moving slowly and sometimes not at all.
The river is the forex Australia market and your behaviour in it represents trading. Many traders will prefer following others and trading in a safer direction. Yet, there are those who prefer to trade against the market despite the increased stress. One solution would be to give up and leave the river. Another solution is to understand that the heightened stress is within you. Once you have acknowledged this fact you will be able to navigate the river easily.
Buying high and selling low on the forex Australia market
In order to be an effective foreign exchange trader, it is advised that you buy high and sell low. This means that if the current market price is high then the market is moving up. Those who do not buy currencies at this point will be trading against the forex Australia market.
If the price is low, one is encouraged to sell the currency pair. Those who do not are also going against the flow of the market. It should be noted that the foreign exchange market is extremely volatile and can change direction at anytime. One must be aware of this and be prepared for any unexpected swings.
The underlying mental state
The majority of new traders will choose a ‘go with the flow’ option, so what is the motivation for those few that trade against the market? The most common reason is the need for control. It is a desire to show strength in trading skills and strategy, despite the forex market being uncontrollable.
An alternative explanation looks at trading obsession. The heightened emotions involved in trading against the foreign exchange market can be addictive. This can cause an individual to continuously trade in this direction as a desire of hitting that ‘high.’ Trading addiction is especially dangerous as it can lead to both technical and psychological distress. Evidence has shown that many of these traders lose more than just trading capital.
In addition to both control and addiction, there are those who will not accept loss. It has been noted that approximately 90% of all foreign exchange traders will experience detrimental losses at one point in their careers. However, these individuals refuse to believe this fact. They develop unrealistic expectations and a delusional belief of large profitable trades by trading in this manner. This mental state can become so severe that it can lead to trading addiction (see above for an explanation).