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Trader Psychology: Which Is More Likely to Reverse - EURUSD or USDCHF?

Trader Psychology: Which Is More Likely to Reverse - EURUSD or USDCHF?

2014-12-12 01:54:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

• There are many 'cognitive biases' that skew our interpretations of the markets and trading

• One simple tendency is a statistical valuation skew when an FX pair is rising versus falling

• We use EURUSD and USDCHF to show probability of continuation and reversal doesn't change due to direction

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There is a laundry list of 'cognitive biases' that can warp trader psychology and behavior. These fallacies arise from emotion, social behaviors and even human nature; but they are generally a detriment to our trading. One very simple tendency that many traders to have is assigning a different valuation of trend potential (reversal versus continuation) depending on the direction the market is taking: bullish versus bearish. While this may be a practical association in a market like equities, it doesn't carry over to FX. We look at an example of this bias using the EURUSD and USDCHF in today's Strategy Video.

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