Behavioural Biases in the Forex UK Market
The forex industry often beckons individuals with narcissistic personality traits to operate as traders. These individuals will display behavioural characteristics such as arrogance, extreme confidence, disregard for others’ emotions and extreme discipline – all characteristics which will serve a trader well should he wish to succeed in the field. However, notwithstanding the dedicated and utilitarian persona a trader may present, he will often develop behavioural biases by acting upon these emotions. By holding these biases, the trader may place himself at great risk, financially.
Below are common behavioural biases found among traders worldwide, including within the forex UK industry:
1. Overconfidence in the Forex UK Market
The trait of overconfidence can be found in the majority of forex traders. It presents itself through two core components: an overconfidence in the quality of the information you are working with, and the method by which you act on that information. By using information developed with an arrogant and biased perspective, one may be acting on incorrect and irrational facts, leading to poor trades.
In order to avoid this form of behavioural bias, it is best to trade less frequently and invest more. By reducing the amount of trading, you will develop a stronger understanding of the processes behind the act of trading, which, in turn, will make you a stronger and more knowledgeable trader.
2. Reducing Regret in the Forex USA Market
Reducing regret can be described as engaging in behaviour that ensures one does not regret “not having done it.” For example, getting a tattoo in order to go through the experience of getting a tattoo and reduce any possible regrets over never having had the experience.
In the forex industry, a trader will try to reduce possible feelings of regret by maintaining a stock despite the strong pattern of losses. The trader will continue to hold the stock until a majority of the value has been lost, and then he will sell. He has engaged in this act to decrease any chance of regret should the possibility of an increase in stock value have occurred. In order to avoid this bias, a trader should set personal trading rules – and stick to them!
3. Inattention in the Forex SA Market
Although the forex market is an exciting industry in which to work, it can be rather confusing. This is not due to the processes and protocol of the trading occupation, but due to the market itself. The forex market is expansive, with thousands of currencies to be traded, making it difficult to understand without training and dedication.
A trader must be highly committed to his chosen career, and must have a strong ability to focus. However, the great amount of stocks and trades may boggle even the seasoned trader’s mind, and it is not uncommon for a trader to act upon limited information. This is a behavioural bias known as ‘bounded rationality’, and can often occur in conjunction with overconfidence.
In order to avoid this form of bias, the trader must acknowledge his limitations and learn/force himself to engage in research of the unknown stocks before trading. It can be time-consuming, but it is highly beneficial.