Have you ever witnessed a situation where two forex traders interpret the same chart in a completely different way? If so, you’ve seen a great example of how two people can look at the exact same thing and see different things. This is often referred to as the “perspective” or “perception” of the trader.
While we could endlessly debate which trader’s perspective is the right one (and trust me, traders debate this endlessly), that’s not the point of this post. Rather, we just want to discuss this interesting phenomenon to understand why it occurs in the first place. So why can two traders look at the same chart and see different things?
Read on to find out!
They use different trading strategies
The number one factor has to do with the commercial strategies used by each merchant. Some merchants are what we call “traditionalists.” They tend to depend mainly on technical analysisusing things like support and resistance levels, Fibonacci retracements, moving averages, and other similar indicators.
On the other hand, there are also traders who prefer to follow trends. These types of traders are often referred to as “trend followers.” As you can probably guess, they are less technical analysis based and instead focused on identifying and following trends. The point is that the type of strategy a trader uses will likely affect how they view a given chart.
For example, a traditionalist might look at a chart and see a clear uptrend. However, a trend follower could see the exact same chart and interpret it as being in a consolidation phase before potentially resuming the downtrend. As you can probably imagine, this difference in perspective can lead to completely different business decisions.
Recency bias is a common cause of trader perspective
Another factor that can affect a trader’s outlook is something called recency bias. This refers to the human tendency to place more emphasis on recent events than on events that occurred in the past.
For example, Suppose you are considering investing in a new company. You are more likely to invest if the company’s stock has risen steadily over the past few months. However, this does not necessarily mean that the company is a good investment; the stock could easily fall in the future.
The same is true in the world of currency trading. Traders who are influenced by the recency bias are more likely to buy a currency if its value has increased recently, regardless of whether or not it is actually overvalued. In general, it’s important to be aware of recency bias and try to make decisions based on all available information, not just the most recent data points.
Traders may have different risk profiles
Another thing that can affect a trader’s outlook is their risk profile. Some traders are more risk averse than others, which means they are less willing to take trades with a high potential for loss. Other traders seek more risk and place trades with a higher potential for loss in the hope of achieving a higher return.
risk and return They are two faces of the same coin; you can’t have one without the other. This means that traders with different risk profiles will likely view the same chart differently.
For example, a risk averse trader could look at a chart and see great potential for loss. On the other hand, a risk-seeking trader could look at the exact same chart and see great profit potential. It doesn’t take a genius to conclude that such differences will lead to conflicting trade-related decisions.
Traders can have contrasting emotional states
Another factor that can affect a trader’s outlook is his emotional state. Some merchants are very emotionally invest in their trades, while others take a more independent approach.
For example, a trader who is feeling anxious about a trade is more likely to exit the trade prematurely, even if there is still potential for profit. On the other hand, a trader who feels confident about a trade is more likely to hold the trade for too long, even if the market starts to turn against him.
Of course, emotions are not always bad; they can actually be useful in some cases. For example, a trader who feels confident about a trade is more likely to take on additional risk and potentially achieve a higher return. However, it is important to be aware of how his emotions can influence his business decisions.
Professionals and amateurs have different perspectives
A final factor that can affect a trader’s outlook is their level of experience. New traders are more prone to to make mistakeslike buying a currency when it is overvalued or selling a currency when it is undervalued.
On the other hand, experienced traders are more likely to understand the market better and make trades that are more likely to be profitable. Of course, even experienced traders can make mistakes; nobody is perfect. However, the difference in experience can still lead to contrasting perspectives.
Trader Perspective Summary
In conclusion, there are many factors that can affect a trader’s outlook. Some of these factors, such as recency bias and emotional state, are outside of the trader’s control. But some other factors, such as risk profile and experience level, are under the control of the trader.
It is important to be aware of all these factors and how they can influence your trading decisions. By doing so, you can ensure that you are making the best possible decisions for your trading strategy.
Charlie Svensson is a fast-paced and attractive freelance writer who works for the help with college paper agency. He is a master at writing finance related blogging and content. Besides that, Charlie enjoys writing about education, social media, marketing, SEO, motivation, and personal growth.
👉 If you want to receive an invitation to our live webinars, trading ideas, trading strategy and high-quality forex articles, please register on our Newsletter.
👉 Click here to see our financing programs.
👉 Don’t miss our forex trading ideas.