Crowd Behavior And Its Influence On Forex Market

Every day a new idea or approach to Forex trading is coming up. Recently we noticed a certain strategy of market’s analysis, when a trader focuses only on the single financial instrument (currency pair) without looking into the analysis of other instruments.

According to the statement of Alexander Elder, a famous specialist in technical analysis, the behavior of traders in the market is very similar to the behavior of crowd, which can be characterized by certain laws of mass psychology. Mass effect simplifies thinking, eliminates personality and leads to the manifestation of forms of herding, collective behaviors, which is more primitive than individual. One of the features of primitivism is the increasing role of a leader.

A Forex price chart, according to Elder, plays a role of a leader, attracting a consciousness of crowds of the market. Such psychological explanation for the behavior of a market’s price determines the involvement of the theory of dynamic chaos. Some predictability of the market is explained by the primitive crowd behavior of traders, who form a single chaotic and dynamic system with a very small number of its inner freedom.

According to this theory, if you wish to forecast the future direction of Forex price movements, you need to go away from the crowd and become smarter. In order to do that, you have to develop your own system of game that is based on the certain rules and laws of market’s behavior and follow it. Don’t give up to the influence of emotions and Forex market’s rumors. In other words, forecasting of price movements must be based on a certain algorithm. You have only to create such an algorithm. There are multiple software available that can help you creating a trading strategy based on fundamental and technical analysis.

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