Hello, everybody
I suggest we relax a little and go away from different trader topics for a while, from all those candlestick patterns, price swings, swaps, forex trading strategies, bulls and bears... What other clever words are there that lure you to study Forex trading? :) In general, from all this.
Surely, not only do I sometimes think about global, abstract issues. It's about something more down-to-earth than the meaning of life; for example, how significant is the influence of each of us on what is happening around. With this regard, wise people voiced beautiful thoughts like “when you pull out a blade of grass, the whole universe is shaking.” And I thought, “but it’s really so”, “if you remove some spider-bug from the history of the world, then EVERYTHING could have gone in a COMPLETELY DIFFERENT way.”
Some bird wouldn’t have eaten it on time and wouldn’t have had enough energy to dodge the hunter’s spear. The hunter, in his turn, would have come home with cheerful and with prey just enough to dine for the ancient family of our ancestors, which...I think you understand that the chain of interconnections will only expand further, and in fact initially it was about a spider-bug
“Well, if this blog is about trading, than I see where he is driving at”, a smart reader will think. And it is really so. What if we analyze the impact, each trade makes on the financial forex markets? After all, if you take the above scheme, then each of us is tremendously important for economy...It seems so. If someone leaves, everything is going to be different...Perhaps. Do you have now pleasant feeling of self-importance? :)
1. An enemy that doesn’t exist
Let me first introduce you to a theory that you will most likely oppose. It doesn’t deal with technical analysis, or forex trading strategies, higher interest rates, forex pairs or trading currencies. It deals with human psychology, and, you’re wrong it is not about trading psychology or psychologically important levels. You can study all of this in numerous forex trading books for beginners, forex trading courses and so on. I would like you to look into yourself. In each of us, people, lives such a bug called "ego". This is what you wrongly think of as "yourself." Below, again, my personal view on what is happening.
Surely, many will agree that in childhood it was somehow easier to live. I do not mean your complaints that you need to earn money now, and that before you could eat your mum’s soup watch cartoons and lay and have a nap for a couple of hours. I’m talking about the process of life itself - the interaction and communication with everyone was easier, the feelings were stronger and you didn’t hold them inside.
Next, someone demanded that you apologize, and you realized that you must apologize for that. Then someone else said, “you must respect adults” (without specifying what they are to be respected for ), “what an obedient girl she is, and you...” (without understanding that this way they motivate the child to submit to other people) and so on... I think everyone remembers this or that nonsense in the process of upbringing and education.
Having heard all this, the child thinks like this: if I have to respect adults, then the younger ones should respect me, just like that, for nothing. If I obey, then they must obey me. Well, because it's fair, right? If I owe something to others, then others owe it to me too. However, the matter is that most of these rules are ABSURD in the form they are pronounced.
Because they lack the details, I described above. But a child, due to the lack of experience, just believes these words, and afterwards, he/she starts LIVING according to these rules, EVEN WITHOUT REALIZING it.
The “ego” I was talking about consists of just a number of such rules as ‘you give me and I give you’. Few think about these rules and how they affect their lives. However, you can watch their influence in yourself, for example, when you are angry at the price chart that is going in the WRONG WAY. Just realize, you are angry with the forex currency PRICE! It is not a person, it isn’t even a bug or a spider, it isn’t a living being at all, it is rather more like a rain or drought. But you personify it and think that the market price is DELIBERATELY going against you. This is because you think like this: “I haven’t done anything wrong to it, why is it treating me this way, why it doesn't allow me to make money; I am mad at it because it makes me look like a fool”, do you have something like this in your head when you open your trading platform? =)
If you have small children, try carrying out a funny experiment. Let your child buy EUR/USD for you on a demo account. Explain that if the trade is winning your child will get a sweet. And, if the trade is losing, there will be no sweet. And watch your child’s response to the price moves.
I am 99% sure that among all the variety of emotions, a child won’t definitely feel angry with the market. (It is not a recommendation how to trade forex for beginners)) Why? Because a child doesn’t yet know that the market “owes something to him/her” because he/she “behaved well” and “haven’t done anything bad to it” =) But an adult trader waits for a kind of gift from the market for “behaving well”: he/she has traded with the trend, minded risk management and so on. However, it is more correct to say that the “ego” of the adult trader is waiting for the gift.
Well, I know that don’t sound like a scientist or an expert or what not. But I also know that people STRONGLY dislike discussing this topic :)
Well, what am I driving at? I am driving at the fact that due to these UNRECOGNIZED expectations and claims to the movements of the price chart after you discover some price action pattern or a trading indicator signal, the price is treated like something hostile and (attention!) LIVE, i.e. having its own wishes and plans. It is like when people hurt themselves on a piece of furniture and out of anger kick it “in revenge”. Next, you start thinking that if the forex price chart is an enemy, so it sees you as an enemy too.
And, if there seems to be an enemy, then people’s all conscious activity is replaced by a primitive SURVIVAL instinct. A forex trader wants to win the FIGHT, to learn the opponent's habits, to outwit, to predict, to forecast forex market ... Do you see? Although INITIALLY everything is based on unreasonable claims to the THING (not even a living being) called “price”.
And you start thinking over the questions like:
- How to identify the trend? (forecast the forex trend, where it will go, to gain),
- How to set a stop loss so that it would be unprofitable for a big trader to trigger it? (how to avoid losing trades),
- Why not try trading the martingale way/trading on the news/carry trades? (find the market’s ‘soft spot’, so that it will 100% yield the money regularly)
However, these questions, if you look closer, are absurd in terms of trading; they are similar to the question “how to chop a salad so it would be tasty” about cooking. After all, the whole thing in both cases is not in some kind of “secret key to trading success”, but in high trading skill that results from long, ample practice
To sum up, affected by the ego, a trader sees the price chart like an enemy, and therefore, there seems to be a kind of COMPETITION/FIGHT that has been caused by (attention!) allegedly the PRICE CHART behaviour (ha ha!), rather then the trader. And, if it is a fight, then it seems like the price chart ‘wants’ to trigger the stop loss, to deliberately yield losing trades to the trader, so that he/she wouldn’t make cash in forex market.
But in fact, the trader is simply unconsciously afraid of pain, he/she feels when a stop loss works out, there is a series of losing trades, or something else unpleasant; and the chart seems to him/her a potential source of this pain. And the funny thing about all this is that, despite the entire common sense in the world, it seems to the trader that the price chart REALLy is hunting for his/her stops, trying to prevent him/her from making money. No matter, how absurd it is :)
Therefore, the trader thinks he/she is much more important for the market and other traders than he/she really is. Even if you perfectly understand the irrelevance of these feelings and the how small trades are, compared to the turnover of the world currency market and millions of its participants to all market in the world. To get you to understand this ‘absurdity’ not only in your mind but to prove it with facts as well, I suggest we go on to the next part.
2. A water molecule in the ocean
I am really proud of this subtitle :) This of what an average individual trade is for the global foreign exchange market process.
This is what Wikipedia writes about daily (!) forex trading volume.
- In 1997 – 5 billion U.S. dollars .
- In 1987 — 600 billion dollars
- In late 1992 – 1 trillion dollar
- In 1997 году — 1,2 trillion dollar
- In 2000 - 1.5 trillion. dollars.
- In 2005-2006, the volume of daily forex trade volume ranged, according to various estimates, from 2 to 4.5 trillion dollars.
- in 2010 - 4 trillion dollars.
- in 2013 - 5.3 trillion dollars.
- in 2016 - 5.1 trillion dollars.
I’ll explain what is “trade volume” or turnover with an example: if during a day I bought $1000, which you sold to me, then the day trading volume of “our market” was $1000.
You see the ABSURDITY of the feeling that all these trades (with the volume of about $5 100 000 000 000 a day) are executed to draw the price directly to the level of YOUR stops. Yes-yes, because, in fact, the market is not hunting for you stop losses. It is hunting for mine :)
But you will still have these feelings until a certain point. This way, your mind tries to protect you from the inner pain, feeling fear and trying to avert the risk. So it takes a trader some time to get used to trading process, to keep cool and not to get upset at each loss, a wrong level for stop loss and so on. Then you will become calm when analyzing the currency trading price chart, and your attitude will be more reasonable.
3. Price origin:
3.1 Offer and demand?
It is clear with traders. Now, let’s try to find out what the price is in fact. The first answer you are likely to have is that “this is the result of offer and demand at the moment”. At least, this is what numerous online trading academies and online courses teach. I mean, all those millions of forex traders make some total trade volume of asks and bids. And which volume is bigger, that “dominates”.
How, in my opinion, it is not completely correct to suggest that the interaction of offer and demand is the price origin. Otherwise, the origin of table is the interaction of “molecules of wood”, and the origin of cloud is the “interaction of water molecules”. That is, when you look at various kinds of interactions, it is rather about the features and properties than about the root source.
Let’s go back to the price and look wider: what can influence the traders’ DECISIONS to buy or to sell a particular currency. Perhaps, if the country’s economy is expanding at a good pace, then its local currency will be more expensive than the currencies of other “slower” economies. The more expensive currency is more likely to be bought. To do it, you will need to sell your local currency and buy the currency of that country, thereby increasing the demand for it, and so, you will ‘take part’ in the price increase for this foreign currency.
At some point, the expansion of any economy slows down for a few reasons: as people “started many businesses” and invested much money in the development of existing companies, either the goods and services market will become oversaturated because of this, or there will be less demand (due to loans taken by the population, which need to be paid, for example). As a result, the growth of the currency price slows down and later it may even start falling down.
Therefore, some people will sell their businesses (because of unprofitability), some people will stop investing in this country’s stocks and start investing more in stocks of another country to trade stocks, etc. As a result, the capital a kind of flows from one foreign currency into another, more promising in terms of further growth.
Of course, there are also various investors, investing their funds ‘in advance’, i.e. when a promising industry emerges (in a competitor country), which they think in future may surge and return good profits due to investing at the early stages.
These investors face a greater risk, as they invest BEFORE “global change of the trend” becomes clear to make very large returns. However, if you look closer, these venture investments are based on the same mechanism as forex speculators. Investors see some value in a certain idea in which they invest their money. Therefore, it is the VALUE and the POTENTIAL of PROFIT in future that is essential for any investment.
3.2. Large market participants
And now, let us look at all this even MORE globally. Roughly speaking, capitals inflow to where there is a growth potential. I mean, who will invest their funds to a country until there is some significant potential for making profit? Therefore, capital flows ADJUST to the existing economic environment, rather than vice versa (like it is suggested by the supporters of the theory of Big Traders or large traders who draw the price in the needed direction themselves).
Therefore, all these commercial banks, exporters/importers, hedge funds and other big market participants basically just REPRESENT the state of global economy by their actions, ADAPTING their activities to the existing financial conditions. And in the second place, their actions affect further economic processes. No one will invest in the economy that “is about to crash” without any signs of potential profit in the future. And what will happen if many forex market participants “want to affect foreign exchange rates” and buy up the currency of such an economy, build factories / open and develop enterprises there? Nothing will happen. Good for them. They are likely to simply go bankrupt in this case, because the investments will not pay off, and the economy will still collapse.
Well, if the forex market participants basically ADOPT to the economic environment of a country, then what is the GLOBAL MARKET in fact? Who is it driven by, if even the biggest participants just adopt?
3.3. Something else? Then what is it?
I hope you aren’t tired yet, because, to answer this question, we need to study the situation as globally as POSSIBLE. From this point of view, it is clear that a good/bad state of a particular economy results form a great number of factors. These are random events, like earthquakes (can’t be predicted), the weather that can destroy the crops, political decisions (they can’t be predicted, though many like arguing with it, but just remember the British pound, for example), change of directorship in world large corporations (the outcomes are partially predictable) and so on and so forth.
These are really millions and billions of events, from completely insignificant to global-scaled ones; many of them are partially or completely unpredictable. And, to answer the question of WHO rules the global market, you need to answer the question WHO RULES EVERYTHING ON EARTH.
What many people are annoyed at? At those unpredictable things, like weather, earthquakes, changes of companies’ directorships, sudden crashes and sudden all the rest that ANNOYS EVERYBODY.
It would be so good without all this “unpredictability”, it would be so easy to forecast what is to be with a particular economy, to calculate coefficients, to invest and then just to wait for you profit to grow, i.e. KNOWING THE FUTURE. And this unpredictability is rather ANNOYING!
However, the same uncertainty and its significant impact on the global economy makes things as simple as possible. Due to this uncertainty, all of us, from the least to the largest market participants, are just the OBSERVERS of what is going on. It means that, in fact, nobody can have a final advantage over the others, we are all basically facing unpredictability and uncertainty about the future.
The price in the trading chart, as known, results from all asks and bids at the PRESENT moment of time. The decision to buy/sell is taken by the market participants based on EVERYTHING that is happening NOW.
Therefore, the price in speculative trading is nothing else but a represented REACTION of all forex market participants to ALL processes, taking place in the world at the present moment.
“But some people may want to delay entering a trade until tomorrow, because now they have decided to rest, for example ...” Yes, of course. But this only means that the current conditions result in these events. Believe me, if a large-scale earthquake happens, and there is a risk of a sharp fall in the forex currency price - the very same people will instantly forget about their rest and “adopt” to the circumstances :)
4. Answer to the “main question”.
But what is forex trading, if all of us are just observers? What part does an individual trader play in all this variety of processes and participants of various scale?
It is very simple: all our trading decisions, based on various smart trading indicators/waves/angles/levels are nothing more than just bets. You only bet not on a horse in a race, but on the price of a particular currency. EVEN if you trade very large funds, you STILL see that the rules are the same, as the global situation can change any time, in ANY way.
Instead of a conclusion, let me offer you advice that I myself followed at the right time and that you won’t follow antil the right time comes. If you want to become a good trader, you should just find a simple forex strategy and start trading real time. I know that this may sound stupid to you, and you would like to read about ‘Big Boys’ and so on. But you will NOT LEARN anything that can help you improve your trading performance. Unless you START PRACTICING. Forex market is a kind of environment, space, like ‘football’ or ‘medicine’. The only thing, needed to improve your performance, is your forex trading skill that can be developed only in practice within this environment.
Mistakes are inevitable in this process, and just because we don’t want to make them, we put off real live trading; at the beginning, we are all afraid to face the reality and see what our trading skills are IN FACT. But there is NO OTHER way to do it, unfortunately. If you are really willing to become a trader, you have to be trading, you have to make errors, you have to learn how to trade forex, you have to develop your skill, study forex, analyze, draw your OWN conclusions and so, you’ll eventually become an advanced trader.
I wish you success in your forex trading! :)
P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :)
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