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Forex Market Speculation: A Psychological Analysis

by Elena Martin   ·  August 31, 2022  

Forex Market Speculation: A Psychological Analysis

by Elena Martin   ·  August 31, 2022  
Trading involves forex speculation, which is the name of the game. Every trader, at some time or another, has to click ‘buy’ or ‘sell’ and commit to a position based on their research even if there is no assurance of success. Unfortunately for traders, the market may have a totally different perspective on the market, which may cause them to take a minute to reflect seriously.

This article discusses the following and attempts to answer some of those challenging questions:

  • What exactly does market speculation in foreign exchange mean?
  • What happens if everything goes wrong?
  • Top 4 suggestions for speculating like a pro trader.

Buying and selling currencies on the foreign exchange market for the purpose of profit is speculation. Because no one can predict with confidence whether the market will move up or down, it is known as speculation. Before entering a transaction, traders evaluate the probability of both possible outcomes.


You have many of the tools necessary to succeed if you’ve built a trading strategy focused on forex speculation and mastered the fundamentals of the market. And if that success doesn’t materialize, you could start to wonder a lot.

“Am I using the best trading strategy?” or “Do I really understand what I’m doing?”

These inquiries or concerns are not original. Most traders have acquired the skills to get over these notions at some point. Let’s respond to these inquiries directly:

1) Am I Using the Correct Trading Strategy?

Market circumstances alter with time, but many traders are unaware of this at the beginning. As a currency speculator, you may spend weeks studying a particular market that aligns with your current approach, but this is likely to change, and when it does, it may seem like nothing is going your way.

A fantastic illustration of this can be observed when comparing EUR/USD in 2017 to the same currency pair in the first half of 2019.

In 2017, the EUR/USD currency pair spent the most of the year in a robust advance. Any sane trader would want to employ a strategy like this after backtesting trend trading tactics, which would naturally provide favorable outcomes.


The EUR/sideways USD’s movement over the first half of 2019 paints a drastically different image, making things challenging for novice trend traders. This idea is shown by the red 200 day moving average, which repeatedly crosses across price while failing to provide a distinct signal.


Investing some time in determining whether or not market circumstances have altered is a good idea for traders. It is entirely likely that the trading method is effective but that the market no longer has the qualities that first attracted you to it.

2) Am I Really Doing This Right?

The expertise and readiness of each trader will determine the solution to this challenging issue. Since this question cannot be answered, the best course of action is to examine what others have done incorrectly, draw lessons from it, and steer clear of similar trading errors.


1) Don’t Allow Risk to Influence Your Behavior

The impression of losses presents traders with their toughest psychological challenge (and the concept of losing). For traders, the disappointment of realising a loss when a trade is closed out surpasses the joy of realising a profit when a deal is realised.

Top traders prioritise using excellent risk management. Without utilising stops, traders may win two-thirds of their trades and still burn out their money. This has the inevitable result that traders hold onto losing positions while taking profits as soon as a position becomes profitable. The wins are outweighed by the loses, which is unacceptable.

Implementing a trailing stop or manually moving your current stop when the market advances in your favor is one technique to control your emotions. In this manner, traders can unwind with the knowledge that they are breaking even and that any subsequent movement in your favor is pure profit.


Know the amount of risk you are willing to accept before making a transaction, and make sure the risk to reward ratio is at least 1:1.

2) Maintain a Positive Attitude on the Charts Every Day

In this game of currency speculation, you will unavoidably lose money, thus it’s crucial to prevent such losses from affecting your outlook.

It may be highly depressing for traders to often suffer the disappointment of getting stopped out. As a consequence, they shortchange their analysis or doubt their own speculations. Never a good thing, this.

The secret to maintaining a good outlook while trading is to simply see losses as a necessary part of conducting business, similar to how a company owner views costs. Because if you understand how to lose appropriately and how to maintain those losses in perspective of the wider picture, you will have tackled the most important components of trading psychology.

3) Maintain a careful balance between fear and greed.

These two motivations may affect many aspects of our life, not only trade. Both fear and greed may be quite harmful while trading since they impair judgement and cause you to make poor choices.

When in a losing position, the majority of people get greedy and are prepared to hang on if the price can just rise to where it was before. And the majority of people start to feel afraid when they are winning.

When they are shown to be true, traders should go to the opposite of those motivations and become greedy. If you’re worried that your original risk is still exposed, the breakeven stop might assist.

4) Avoid letting your confidence overpower you.

It’s natural for people to become more confident in your dealings after a run of wins, and this may be advantageous.

However, if a trader enters the realm of “overconfidence,” hazardous behaviours may creep into their methodology, none more detrimental than the inclination to disregard their own trading guidelines only because they believe it would be profitable.

As a result, traders must constantly strive to maintain a delicate balance between being scared or afraid and being overconfident.