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The Questions You Need To Answer When Deciding To Trade Foreign Exchange (Forex) Currency

Deciding to trade the forex market for profit is a bib decision. A lot of thought must go into it if you hope to extract profit from trading foreign exchange currency. Here we look at a few of the questions that will need answering.

Loss Aversion Bias

Another popular type of bias is Loss Aversion Bias which can be defined as the strong will to avert losses rather than make gains. Studies have shown that people experience losses very differently from gains. People tend to experience about twice as much pain with a loss as they experience pleasure with a gain. It is therefore concluded that psychologically, the possibility of a loss is on average twice as powerful a motivator as the possibility of making a gain of equal magnitude.

Confirmation Bias in Forex Trading

Though many of us may not realise it, our brains are actually wired to favor information that is aligned or favours our beliefs or theories. In forex trading, this is referred to as confirmation bias, a type of selective perception that causes one to actively seek out and assign more weight to evidence that confirms their hypothesis, and ignoring evidence that could disconfirm their hypothesis.

Regret Aversion Bias

Regret Aversion Bias can be simply put as the tendency to avoid making decision due to the fear of experiencing the pain of regrets. People exhibiting regret aversion avoid taking decisive actions because they fear that, in hindsight, whatever course they select will prove less than optimal.

Know When to Leave a Position

One problem many traders encounter is staying too long in a profitable position that they don’t realize when the tide turns and the downward trend begins. There may be reasons why a trader can overstay in a position until it becomes too late or unprofitable.

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