Forex trading:Price and Crowd Perceptions

Price as a Derivative of People’s Decisions and Perceptions

Yes, price is a derivative of human interactions and psychological outcome. As such, do not take price as a being that have its own characteristics and is departed from the human being.

When you look at price, understand that price is an OUTCOME, a DERIVATIVE. It is the outcome of DECISIONS made based on PERCEPTIONS of massive numbers of people (Traders).

That is why as traders, we should not care too much about the news that whad just been released into the markets but rather people’s ACTIONS based on that news. The news by itself doesn’t directly move the market. Are you shock to read that? Now, let me explain.

What if there was a big power failure after a major news event was released into the market and every trader could not put in a trade. What will happen to the price? The price of course would not move right? So, what moves the market? Is it the news? The news is not the main thing here but people’s PERCEPTIONS and the DECISIONS that they made is the main thing. That is why I believe that we as traders have to be sensitive about the market and its rythms and movements.

Also, markets sometime move even without news. This happens because there are people who have information that allows them to have the upper hand in the market. For example, if I own a piece of land and I know that the land contains oil and minerals. Would I sell that piece of land when someone offers me triple the price? The answer is NO because I know that the land is worth much much more than that. This is in parallel to the market. Some traders know information that teh general public doesn’t know and they will usually enter a position much earlier before the big moves happen. By the time the public knows about it, the price would have moved immensely. That is why, as traders, we need to understand price action and the nuances and rythm of the market. We sometimes have to take a trade and follow a market that is running fast even without knowing why it is acting as such. Not to worry as the news will appear shortly to explain the occurence. There will alsways be data and news to back up a certain movement just so that everyone will think that the market is efficient and that that rationality is the backbone of markets. Of course you and me know that that is not the case. Rationality, at times is ceded and overtaken by SENTIMENTS and PERCEPTIONS.

So remember guys, be aware that when you look at the price, you are not just looking at price as a separate entity from humans but rather as an OUTCOME. Let me give you the formula:

Price (Outcome) = DECISIONS made based on HUMAN PERCEPTIONS of available DATA

I hope the above info helps.