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Forex traders’ psychology: buyers and sellers

Forex market has its driving forces. Such forces are represented by participants of the market. For clarity, following division is accepted on market: bulls, bears, pigs, rabbits, hogs, lambs. In this zoo, driving forces are exactly bulls and bears. Their clear intentions and determination can greatly influence currency rates. This terminology was adopted from stock market, where emotions play not the last role in movement of quotes, thus, analogy with animals and their typical behaviour provides a clear idea on psychology of market participant.

Bulls are buyers. Traders taking long positions buy currency. Analogy with these animals occurred thanks to the image, on which bull lifts its victim by the horns and throws it up.

Bears are sellers. They sell currency and their strategy is to suppress, drop the price.

Pigs is usually the name of those trading with big volumes because of greed and thereby subject their deposit to the risk of losing a lot of money.

Rabbits open and close a lot of trades within short intervals of time but seldom get stable profit. As a rule, they lose deposit.

Hogs forcefully keep their profitable trade as long as possible. But since market changes, they are not in time to fix profit and lose money.

Lambs follow market blindly and subject to influence of crowd. That's why in the result they lose their funds as well.

Buyer's psychology

Speaking of bullish trend or bullish sentiment in market usually mean that prices move up. The opposite process is called bearish.

Bull act as per the following scheme: they start buying currency on massive scale. Most part of traders are under the influence of sentiment. When you watch on growing price on chart, you wish to get quick profit, therefore, many traders start buying currency making market overbought in the result. Waiting for this moment, bulls sell at new overestimated prices. As a rule, in the end of the day prices drop down to the level as they were in the beginning.

Seller's psychology

Since in Forex market you not only can buy and sell, but make it on credit, bears can earn on difference. For that bears sell at attractive prices. Traders guided by seller's sentiment also get to short positions for sale and this way they help to decline price. When quotes become beneficial for bears, they start purchasing currency at dumping prices, that usually brings market to initial position.

How not to become a victim of bulls and bears?

To get the moment, when bulls or bears move the market in their direction, you need to use their methods of technical analysis. Analyzing of prices for previous periods as well as observing current market situation will let you understand if market is subject to their actions and when price gets back or if there are different factors making price move.

Originally, candle chart rendered bulls' and bears' candles with different colors. This tradition remained till now, but color schemes are different. In standard chart white candles are bullish, black are bearish.

For better clarity, you can use simple Bulls and Bears indicators. They help to demonstrate market's sentiment and define if sharp change is planned by market makers or is subject to other driving forces stipulated economically or politically.

In the analysis, various indicators are used to estimate market situation without interference of emotions. For that traders use various approaches: someone prefers not to trade during news release or on opening/closure of market (when emotional reaction of crowd for events can generate sharp movement), other try to keep their strategy. For novices, it is important to understand that any sentiment on market is a driving factor . You can successfully trend along trend but as a rule intuition will let you down sooner or later and you will risk to loose deposit.

If a Forex trader decides to use bullish and bearish sentiment in trading, one of good methods is turning chart upside down. For example, you see signal for purchase. Turn chart upside down and see if you see the opposite signal from such perspective. It does not only help to look from another side, but also let you estrange emotionally. The last is the main thing, which will not let you becoming victim of bulls or bears.

Read more about psychology of Forex trading.


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