Have you ever noticed an impulse wave in a Forex chart? An impulse wave is a wave that moves very fast, in an impulsive manner towards one direction. This wave charts the greed ingredient of Forex market investors: A lot of people realize that the new direction of the market can be very profitable and jump in and hold their position. Greed is never satisfied but when the move has gone too long, too far some investors begin to be overwhelmed by fear and liquify their positions to secure their profits. This is depicted in a Forex chart as a correction. Nevertheless when the correction makes its own way a lot of people see the new opportunity and jump in again. The previous trend resumes it’s way and so on. When people are overwhelmed by despair and fear to lose their hard earned money by some negative fundamental changes in economical environment they liquify their positions in the risky markets as Options or Forex and resolve to more safe investments as bonds or gold. This is the turning points of a market crash.

These changes in investors’ sentiment move the markets. The professional trader should have the discipline to use its own set of rules (his Forex system) and ignore the sentiments of greed and fear. Moreover he should have the instict to recognize the sentiment of the market that is to feel what the majority of other investors feel about the market. This is the most difficult task for an investor because this conception of the market can ofter be very blurred by his own emotions.

Behavioral finance studies these emotions and how they affect the market. Dow Theory includes some investor sentiment ideals to explain the market cycles. In my opinion the market sentiment is best explained with Elliot Wave Theory. This theory is a very complex theory but when mastered, the forecasting results can be extraordinary for the trader. Elliot Wave Theory, in a summary, supports the fact that due the emotions of the traders every market cycle is comprised by 5 impulse waves and 3 corrective waves. It is a very interesting theory with great forecasting potential but the trader needs to study and practice it a lot in order to master it.

If you want to see some interesting points of Elliot Wave Theory you could visit my site by clicking here.

Thank you for sharing your interest in Forex with me.

Sincerely yours,

Louizos Alexander Louizos

For more information please visit my site at http://www.easytradeforex.com