Author Bio

This afternoon, Currensee will be hosting a free online panel discussion featuring three bright stars from the worlds of trading and forex – Jamie Coleman (author of ForexLive and former managing editor of Reuters FX Hub), Shaun Downey (technical analyst at CQG and I-traders.com) and Boris Schlossberg (director of currency research at GFT Forex) – discussing how trade collaboration, the psychology of trading and the wisdom of the crowds is creating a new category of social data.

We’re really excited that these good folks have taken the time to appear on our panel and answer not just our questions but also yours!  We’re going to start off with a quick check-in on the outlook for the USD/JPY from technical, fundamental and social viewpoints, and then move into some questions about how the experts see the issues around volume and sentiment in Forex.  Please join us at 2pm ET today for a chance to pose your fx trading question to Shaun, Jamie and Boris. There are just a few seats left…

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Probably one of the earliest applications of psychology to the financial world was the Prospect Theory in 1979.  Two psychology professors, Amos Taversky and Daniel Kahnman, proved that people when faced with a financial decision will not necessarily make the most logical selection. This is because of the way we think about our prospects and not the big picture scenario when making financial choices. Kahnman was awarded the 2002 noble prize in economic for his work in the field.

What they proved is that people are affected by losses more than they are affected by wins when they are required to make a financial decision. For example, when a person is asked to choose between receiving $100 or tossing a coin to receive $210 most people would prefer to take the $100 even though the most cost effective option would be to toss the coin (This is because the probability of winning is 0.5 so the utility function for tossing the coin is 0.5*$210 = $105 which is greater than the other option of $100). Another interesting thing they have found is that that the opposite behavior happens when they are faced with losing money. Most people would prefer to toss a coin with the 50/50 chance of losing $210 as opposed to just giving away $100, which again is not the logical option.

So to make a long story short – people like to make as much money as possible without risk and take more risk than necessary when they’re about to lose money.

We can see one application of this in real life trading where most traders tend to close winning positions sooner, take their profit and avoid additional risk. On the other hand they could leave loosing positions longer, take additional risk for the chance that the market would change direction (which rarely happens) and they wouldn’t loose as much.

There are many other applications of this behavior in real life trading. Stay tuned for the next post in this series, coming soon.

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.