22 years of life and a few years of trading, I came to realise how important our expectation of something can be.
This word is of huge impact to traders. I shall use an example to quote. Every month, there would be data coming out from countries, be it in US, European countries or even Singapore. Some data are important while some are less important. The effect on the involved currencies can be huge which is how the term volatile comes about. Have you ever seen a spike or plummet within 10 seconds after a data comes out?
Such extreme movements are normal in currency trading. This post believes expectation plays a huge role in the volatile movements. Next, it brings us to the data forecast. How does the expectation come about? News forecast and information give us an indication where the economy in a country is heading. Any surprise result when the wire is crossed (for important data such as interest rate) would definitely spur huge movements. For instance, during the economic crisis in 2008, if AUD interest rate is coming out in 1o minutes and is forecasted to remain, as a risky currency, it would remain more or less similar if the data is indeed as forecasted. However, if it rises by 0.25%, it could rocket as it could represent the economy is doing well and recovering. On the other hand, if its interest rate decreases UNEXPECTEDLY, AUD would plummet. All this boils down to EXPECTATION.
In life, have you ever thought of something which would turn out bad but in the end, didn’t turn out as bad? How did you feel? You would feel excited, lucky, happy and etc. This explains why I also think of the worst case scenario because things can only get as bad. How about a close friend/kin said something nasty to you which you would not expect them to say? All concludes to expectation again.
Perhaps, that’s how the phrase, ” Expect the Unexpected” comes about. Nevertheless, expecting the worse case scenario seems to be working well for me. Use expectation of yourself or others wisely when communicating, trading and everything you do. It will come in useful. Signing off!
