Forex Trading Tips: Understanding Market Psychology

Psychology is my favorite books topic.
I read so many psychology books, for what, to get to know my self and to understand others.
The point is, psychology will help you to understand what other people do and why they do that.

In forex trading (stocks or option), because we are a single player, with a small amount of money we can't move the market. What we can do is to be a follower, follower of the big players.
To follow them, we need to know what they think and what they fell about the market.

To do that, the idea is using three different moving average. 200 moving average (long term), 50 moving average (medium term) and 20 moving average (short term).

Before we continue, do you know how to use a single moving average?
If you use a single moving average to trade, the buy signal appears when the price cross from below the line to above the line.

 Easy and very simple strategy.

When using a single line, the market psychology turn form negative to positive by crossing the line. In the picture above I using 20 MA as an example. Now the short term trader has a negative feeling about the pair, they predict and push the pair lower.
What if other trader using a different Moving Average, their psychology will be different. Take a look at the picture below:

Let see what other group though about the pair.
The medium term trader, who used 50 Moving Average has the same perception about the pair. They now think that the pair will go down further.

But wait, the long term trader has a different perception. This group think that the pair was corrected and soon will be rise up again.

The scenario will be like this:
1. the price is above all the three moving averages
This mean that most of the trader believe the pair is moving up ward. They think BUY

2. the price is below all the three moving averages
This mean that most of the trader believe the pair is moving down ward. They think SELL

3. the price is below two of the three moving averages

4. the price is above two of the three moving average

This technique help you understand what other traders think about the market (pair).
Remember, this method just to know what other fell.
BUY and SELL is up to you. It's depend on your strategy.

ENJOY your trade.