The Psychology of the Foreign Exchange Market
$36.06
| Author(s) | |
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| Format |
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| Pages |
281 |
| Published Date |
2004 |
If you are interested in how psychology influences the foreign exchange market, this is the book for you. The Psychology of the Foreign Exchange Market sheds light on spectacular market phenomena as well as on subliminal psychological processes in trading decisions. New insights are gathered from psychological theory, survey research studies with leading foreign exchange participants, and finally one-on-one interviews with trading experts. Combining these insights, the book offers an innovative psychological understanding of the daily decisions that determine exchange rates.
Introduction:
The following statements from foreign exchange experts provide a first glimpse at the variety of topics explored.
- Personality characteristics involved in successful trading—the trading manager of a leading bank declares: ‘‘I think you could be a good trader based on trading and experience, but you can’t be excellent. There is something that is inherent in the very best traders that other people just don’t have.’’
- Asymmetric risk-taking after gains and after losses may lead traders to take excessive risk to make up for previous losses. As one trader explains the case of Nick Leeson, whose trading losses brought down an entire bank: ‘‘He was just emotionally attached to his position; he just couldn’t ever believe that he was going to be wrong.’’
- Meta-expectations (i.e., market participants’ expectations about the expectations of other market participants): ‘‘That is what I call market psychology: understanding what people are thinking, why they are thinking it, or what stage of the game they are at.’’
- Trading intuition: Explaining a recent trading decision, one experienced trader remarks: ‘‘People asked me, ‘Why did you do that?’ I said, ‘I don’t know.’ And that’s the truth, I don’t know. For instance, I walked in last Monday, and I was just wandering around. And then I just got this light shining on me, and I said ‘[the pound] sterling is going a lot lower today!’ There is no economics; there is no chart; there is no anything, except for ‘Well, I think.’ And I sold quite a lot of it, and it collapsed, and I made a hell of a lot of money. And I could not explain why I had done it.’’
- Market rumors: ‘‘Rumors are in the markets all the time and markets move!’’
- Market metaphors translate the abstraction of the market into psychological reality. In the words of one trader: ‘‘I think it is a battlefield—like boxing every day. I compete and struggle with the markets. They are very tough, always, and they test me. I need to always be ready to fight.’’
- As another trader explains, these metaphors have important consequences for trading decisions: ‘‘If you don’t like a certain counterparty, for example, you end up like you try to fight against him, with sometimes taking silly positions which under normal circumstances you would not. And this normally causes a lot of losses!’’
Centuries ago, seafarers who engaged in historic journeys of discovery struggled with images of demons on the borders of their maps, indicating the dangers of the unknown. Likewise today, the new field of market psychology is another vast ocean whose many riches have only begun to be discovered. The book promises to take the reader on this exhilarating voyage, explaining the psychological dynamics that shape today’s foreign exchange market.
Contents:
- From Rational Decision-Makers to a Psychology of the Foreign Exchange Market
- Psychology of Trading Decisions
- Risk-Taking in Trading Decisions
- Expectations in the Foreign Exchange Market
- News and Rumors
- Personality Psychology of Traders
- Surfing the Market on Metaphors
- The Foreign Exchange Market—A Psychological Construct
- The Basics
The Psychology of the Foreign Exchange Market By Thomas Oberlechner pdf
4 reviews for The Psychology of the Foreign Exchange Market
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Penelope Kirby (verified owner) –
If you are interested in the result of a survey done through over 300 FX traders in 5 countries or over 200 bibliographies for your own thesis, you will be absolutely delighted. If you want to sharpen your trading edge or simply to have fun (like what Fiasco, Pit Bull, Liar’s Poker and Wall Street Meat do), you will be very disappointed.
I would like to give you an example. In page 154 the author listed a table of importance ratings of successful trader characteristics (n=291, 1=unimportant, 4=very important) of 23 items ranging from Quick Reaction Time (mean=3.71, sd=0.50) & Discipline (mean=3.65, sd=0.55) to Computer Literacy (mean=2.54, sd=0.78) & Social Skills (mean=2.52, sd=0.74). Some might find it helpful. As a veteran pro FX trader and trading book lover who read to sharpen my edge in one of the most competitive market, I dont.
Perhaps the author had just tried too hard to post the findings of his survey into a book that the chapters and thus content are quite disoriented. Sorry to say that there are plenty of much better trading psychology books in the market. IMHO, “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing” by Hersh Shefrin and “The psychology of Finance by Lars Tvede” should be better choices.
Tony Liu (verified owner) –
Although the foreign exchange market is the world’s largest financial market, this book will prove valuable to traders or behavioral finance scholars involved with any financial market. Oberlechner brings the perspective of a clinical psychologist/anthropologist to observe this arena of human chaos and madness. Paradoxes that confound at first, seem clearer when viewed from his lens.
For the practical-minded reader interested in financial trading, this book will hold up a mirror to help examine yourself. Much of trading, after all, is psychology! As one expert points out in this book, “traders don’t just bring their money to the market, they also bring themselves!” It is chilling to read, for instance, about how market trends may just be held up by rumor. How traders use metaphors to make sense of the vast markets (eg, using likening it to warzone or to a lover or to a bazaar or to a casino, etc), is also discussed and may help sort out your own mental algorithms for simplifying financial decision-making:
But if financial markets are full of chaos and madness, human nature, when seen and understood through the social scientist’s perspective is a constant. Oberlechner compares the behavior of today’s traders to human behavior from prior periods: not just the tulip mania bubble but also primitive tribes. E.g., on one island, fishermen exposed to the perils of the open sea exhibited far more superstitious beliefs than those in calmer waters. Does that seem reminiscent of the belief systems of gamblers and traders compared to staid bankers? Perhaps the practical trader may get hints from reading this about how to tame the human beast within to make profits.
Academicians will benefit from the treasure of citations to relevant psychological and behavioral finance literature. Not to imply in the least that this is a dry tome! In fact, the book reads very well, combining logic with poetic flow: I found it hard to put down the book and found myself taking it with me on the subway. You can tell this is someone who has observed the market participants and isn’t just an ivy tower academician.
Lina Person (verified owner) –
I am a veteran forex dealer and in-house trainer of our dealers; this book is required reading. From the opening quote in the introduction of the book you are introduced to the concept that “psychology” is everything in dealing. Believe it! Though the book provides no canned solutions to dealing, it does give you the essential foundations to begin to build your own dealing models.
Kate Arnold (verified owner) –
This book is valuable to any person trading any market. It enforces the thought that you bring yourself to the market, be it currencies, futures, stocks, or bonds. A person is the product of their environment, culture, parents, education and experiences which influences their perception of the markets. It is very difficult to observe what the market is doing without observing what it is doing to you. All markets are a mind game.