Education

Central bank speakers… how to prepare for them?

A tip in managing expectations to improve your trading efficiency

I often come across many new traders basing off their trading day on key central bank speakers like ECB president Mario Draghi or BOE governor Mark Carney, thinking that their speeches will contain something to heavily influence the respective currencies involved.

But a less common talked about topic is how to prepare and manage your expectations ahead of such speeches. On most economic calendars, you’d find that these speeches tend to have a so-called “High Impact” rating attached to it because of the nature of the person speaking. However, it is important to also know the context of their speech because it plays a big role in determining what they will be speaking about.

There’s plenty of ways to find out information on what central bank speakers will be talking about beforehand and that’s the best way for you to prepare and manage your expectations surrounding the event. For example, the ECB lays it all out for you in their weekly schedule which can be found here.
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Here’s an example of how two recent events involving ECB president Mario Draghi where he was scheduled to speak during the European trading session. The first being on 22 February and the second being on 27 March.

Without any context, most traders will just go about their trading day expecting a key risk event to take place as Draghi will be due to speak. And that will affect the way they trade and their view/position on the euro.

However, if you know about what he will speak of or what the event he is attending is related to, you will get a better gauge on how to manage your trading expectations and adjust your view/position accordingly. The phrase information is power would be most appropriate in instances like these.

I provided previews on what his speeches will be about at the time and this was what his 22 February speech covered:

22 Feb Draghi

Meanwhile, this was what his 27 March covered:

Carney Draghi

TLDR: It’s important to understand and know what central bank speakers will be speaking about as it is knowing who will be speaking on the trading day. However, much like trading economic news releases, there is no guarantee that you won’t get rare days – although these are indeed very rare – where central bank speakers surprise with their comments on events not related to monetary policy.

But you can learn to take control and minimise those risks and apply that to your trading arsenal rather than be lazy and ignore what they are about.

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