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Foreign Exchange: The Complete Deal by James Sharpe

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8. Psychology and Foreign Exchange

The book so far has been dominated by numbers. After all, any trade involves a buy and a sell which boils down to two numbers. However, the human psyche remains important. Indeed, for the trader, controlling emotions can be just as important as playing to a set of rules. I shall now discuss some psychological aspects that I believe to be key to trading.

Group behaviour

The human condition is to work and live within groups. Humans feel more comfortable in groups, so there is a tendency to follow the current trend or the latest strategy. Underlying this is the desire not to be left behind. In this context we regularly read that analysts view a currency as extremely overvalued or, in plain language, they ...

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