What is Bollinger bands in forex trading? How to use it?
18
en.fxdailyinfo.com
  • 1
  • 2
19
7

What is Bollinger bands in forex trading? How to use it?

What is Bollinger bands in forex trading? How to use it?

What is the disposition effect?

Forex traders are usually aware of the disposition effect as it affects people in other walks of life. This can be observed during times like market crashes, bear markets, and recessionary periods where investors tend to end up moving their money into cash or take profits faster than they should.

However, this phenomenon manifests itself much more intensely in those trading the forex market. This is because of the human emotions involved, which are heightened by anonymity and liquidity.

Simply put, the disposition effect in trading involves overvaluing the assets you hold onto too long and dumping those you should instead be holding on to even if they are showing losses (in the hope for a rebound).

A trader would logically need to close out an open trade to realize any profit. However, the disposition effect goes against this idea as it makes the trader cling to losing trades in hopes for a rebound or to buy time until they feel comfortable enough selling. As psychology teaches us, humans are bad at accepting loss and resisting change because of this.

How to avoid the disposition effect in forex trading?

In financial economics, the disposition effect is defined as an investor's tendency to sell stock that has increased in value and either hold on to or buy more of a stock that has declined in value. The disposition effect refers to one's choices going from "outcome" i.e., deciding what stocks to hold based on whether they have lost or gained value since the previous trading period, or from "process," i.e., deciding what stocks to hold based on whether they have gained or lost value in a given time interval. In other words, if you get rid of winning positions too early while holding on to losers for too long, then that is the disposition effect.

In forex trading, the same is applicable. Traders urge to take profit when there are profits at hand and continue to hold on to losing trades. This results in reduced gains over time.

To avoid the disposition effect, try using this strategy: For every trade, you place, place a stop-loss order somewhere above entry price if it's long or below entry price if it's short. Then, if the price reaches the stop loss level, close the position even if profits are still available.

Moving stop losses away from entry prices is one of the most popular techniques professional traders use to avoid the disposition effect (and maximize gains). This technique minimizes the risk of getting stopped out prematurely on winning trades and maximizes the probability of getting stopped out on losing trades.

The promotion is published here only for an informative purpose, THIS IS NOT FINANCIAL ADVICE!
Forex Analyst

Fxdailyinfo.com

Fxdailyinfo have large portion of news for Live, Demo and weekly contest which is very helpful for all type of Traders. Broker houses offer Live contest

Recent Comments

Write a Comment

Related Bonus

65% FXChoice Bonus on Crypto Deposit
65% FXChoice Bonus on Crypto Deposit
02 December 2022 11:56 PM
FXChoice $30 Non-Deposit Forex Bonus
FXChoice $30 Non-Deposit Forex Bonus
30 November 2022 01:37 PM
50% FXChoice Welcome Deposit Bonus
50% FXChoice Welcome Deposit Bonus
30 November 2022 11:34 AM
Bull Sphere $30 Free Welcome Bonus
Bull Sphere $30 Free Welcome Bonus
29 November 2022 10:01 PM
RoboForex Welcome Bonus 30 USD
RoboForex Welcome Bonus 30 USD
29 November 2022 03:19 PM
50% Bonus on Each Deposit - OctaFX
50% Bonus on Each Deposit - OctaFX
28 November 2022 08:06 AM
$35 HotForex (HFM) No Deposit Bonus
$35 HotForex (HFM) No Deposit Bonus
27 November 2022 11:04 AM
25% Rescue bonus on your next deposit
25% Rescue bonus on your next deposit
25 November 2022 12:38 PM

Forex Featured Brokers

FXChoice

65% Crypto Bonus, Min: Deposit: 100 USD, Broker Type: STP/NDD,
50% Welcome Bonus

Start Trading View Profile »
OctaFX

Free Trading Signals, Broker Type : STP/ECN Leverage up to 1:1000,
50% Deposit Bonus

Start Trading View Profile »
HF Markets

Minimum Deposit $5, Leverage up to 1:1000 Broker: STP/ECN/NDD,
100% Trading Bonus

Start Trading View Profile »
RoboForex

Minimum Deposit $200, Leverage up to 1:1000, Broker Type: ECN/STP,
30 USD Free Bonus

Start Trading View Profile »
FXTRADING.com

50% Trading Bonus, Broker Type: STP/ECN, Leverage up to 1:500,
$600 Welcome Bonus

Start Trading View Profile »
ATFX

Leverage up to 1:400, Minimum Deposit $100, Broker Type: NDD,
50% Deposit Bonus

Start Trading View Profile »
65% FXChoice Bonus on Crypto Deposit
04 December 2022 02:20 PM
FXChoice $30 Non-Deposit Forex Bonus
04 December 2022 02:20 PM
50% FXChoice Welcome Deposit Bonus
04 December 2022 12:59 AM
Bull Sphere $30 Free Welcome Bonus
04 December 2022 02:21 PM
RoboForex Welcome Bonus 30 USD
04 December 2022 01:58 PM
50% Bonus on Each Deposit - OctaFX
04 December 2022 09:53 AM
$35 HotForex (HFM) No Deposit Bonus
04 December 2022 01:25 PM
25% Rescue bonus on your next deposit
03 December 2022 11:06 AM
ATFX $100 Welcome Credit Bonus
04 December 2022 01:24 PM
HFM $50 Forex No Deposit Bonus
04 December 2022 02:19 PM
FXChoice $30 No Deposit Bonus now
04 December 2022 02:20 PM
Welcome Bonus up to $500 ForexChief
04 December 2022 11:21 AM

Do you have forex new bonus or promotion?

Tell us your bonus or promotion FOR FREE. It is easier than you think!
Add Promotion!


moneta_footer.png
Best MT4 Broker
with lowest cost
Exclusive Access to
PRO Trader Tools
Free Trading
Signals
25% Rescue
Bonus New
Zero Swap Fees
on Gold