18 Ekim 2010 Pazartesi

Trading Psychology

Expectations and sentiment

Fundamental and Technical factors is an essence that can not be denied to determine the dynamics of the foreign exchange market. All that, however, are two additional factors are most important to understand the direction of short-term movements in the market. This can be called also the expectations and sentiments. Very often sounds similar, but not the same.

Expectations is the establishment of data will come from the announcement of economic statistics and finance. Unilateral attention to the value of the announced data will not be sufficient in all learning to reap financial future.

If, for example, U.S. GDP data announced on the value of 7.0% from the previous quarter in which only 5%, and Dollar do not need to move like what you expect to move. If prediction markets had expected a growth of 8%, then read 7% is likely to bring disappointment, so it caused the market reaction is very different from the initial estimate you have come to expect when you are not aware of the actual prediction.

However, expectations can be replaced by market sentiment. This is a general attitude of a market faced with a market value, which could affect the assessment of all aspects of the economy towards a state in question, the overall market pressure, or various other external factors. Using the example above on the state of U.S. GDP; even if the result of 7.0% missed estimates by a full percentage rates, the market still will not react. A possible reason is that the sentiment against the Dollar to be positive regardless of the actual values and forecasts that have been listed. This may be due to the U.S. asset markets are so strong, or weak fundamental condition of the other countries currency. (Euro, yen or sterling)
A term used to replace the "sentiment" is "psychology". 

During the first 2 months of the year 2000, the euro experienced a major selling pressure against the dollar despite improving fundamentals in the Eurozone continuously. That is because as market psychology decided to be more interested in U.S. dollar assets because there are signs that growth does not lead to continuous inflation, and the subsequent increase in sentiment against the U.S. Dollar interest rates will continue to run as a profit of U.S. produce various differential, without releasing lanes economic expansion.

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