The theory states that in a market prices tend to move downward with time. If the market price is expected to rise then the investor will sell or invest in the market expecting the price to rise. Conversely, if the market price is expected to drop then he/she will buy or invest in the market expecting the price to drop.
However, the importance of expectation theory cannot be emphasized enough. This theory is used to explain why the investor behave as he/she does in the market. Investors behave as they do because the market price moves in accordance with their expectations. This theory makes it possible for you to invest and trade according to your expectations in the market without being influenced by outside influences.
The theory states that the investor expects the market price movement to continue moving downward. When the market price moves downward the investor buys and sells accordingly. This does not mean the investor invests or sells more than what he expects to earn. As such, this theory does not necessitate you to change your mind at the last minute.
Some investors will only change their minds when the market price continues to move downward. They will hold on to the investment for longer than what he/she expected to. It is important to remember that in the long run, this can result in more losses for you.
To put it differently, the expectation theory is an investor’s tool to help him/her understand the market better. When you invest in the market, you should be able to understand the movements of the prices on a daily basis.
The belief that expectations can affect the market is also a big reason why most people are attracted to forex trading. Forex trading is a form of trading, where you buy and sell currencies based on the expectations of other people.
For further information on how the expectations theory of expectations affects the market, you can get free newsletters on the subject. You will also find free e-books, charts and graphs on this topic.
When you are trading the market price is influenced by the expectations that other people have about the market. If these expectations are negative you will lose money. On the other hand if you have positive expectations about the market you will win more money.
Since expectations are involved in the market price movements, there is also a possibility that your expectations can be affected by outside influences such as other investors and traders. In this case, you might expect less profit than what you would otherwise have been expecting from the market.
However, this is a very rare situation. It will not affect you the way other traders’ expectations will affect you.
The importance of the theory of expectations can also be applied to your everyday life. For instance, you should always expect what you can get out of your efforts in life.
If you have made some efforts in life and you still expect a good outcome, it will be easier for you to achieve your goals. You should always expect to get what you have set your eyes on.
Always keep in mind that even the most unlikely possible outcomes might still occur. Even if there are some unlikely events that could happen, you should not give up because there are still possibilities that can happen in your life.
Success is not impossible. You can still achieve success and happiness.
As you have learned about the market you will also learn how to avoid the traps that can make your investments lose you money. Follow the expectations theory and your investments will be more successful.
