How Often Do High Volatility Events Take Place?

More often than most traders realize. The key is knowing what the market's expectations are before an event takes place.
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We just have a quick question here from Senior. Now, Senior is asking, how often is there events with very high volatility risk?

So as always, thanks for the question. And the answer is actually more often than most retail traders realize. So there is of cause a difference we can make or distinction we can make between scheduled events and unscheduled events. So arguably any major economic data point or central bank rate decision has the potential to be a very high volatility risk event.

But of course by now you know that the event itself will only have a high volatility risk if it is a highly anticipated event, especially if the market is uncertain about the outcomes. So an example of this can be a, think of a central bank rate decision where money markets are pricing in only a 50-50% chance of a rating.

So half of the market thinks there’s gonna be a cut and half of the market thinks the bank will stand hold, those are always going to be massive, massively high in terms of volatility risk. But any highly anticipated major economic data point like growth numbers, employment numbers, CPI numbers if it is highly anticipated, does carry that inherent risk of volatility and higher volatility.

Then turning to unscheduled events, also coming across the wise in the weekly basis, they are often always going to carry a little bit more volatility risk and the reason of course is because the markets doesn’t know that it’s gonna happen ahead of time right.

So think of tweet from a president or an unscheduled comment from a central banker or you know, OPEC coming out saying something or you know, massive due political developments happening. It’s not a scheduled event, it’s unscheduled so we never know this is gonna happen.

So these type of things always carry with them that inherent risk of volatility because they are unknown so it often causes the markets’ expectations to change which often sees a big jump in volatility as we need to see markets reprice for that particular event.

So when it comes to other major things, you know, things like global recessions. Like the global financial crisis back in 2009 or the Coronavirus market crash we had March 2020, these events obviously carry the largest volatility risk of all events.

But luckily for us these types of events don’t happen that frequently because they can be tricky to navigate and trade. So if we go to a weekly chart like this one on some of the volatility instruments like VIX or OVX for example, we can just see these events that cause these massive types of volatility bombs and these blow outs. Luckily it’s not too frequent that they happen in the market they happen every couple of years depending of cause on the type of situation at the time.

So for example back in 2009 we had the global financial crisis, back in 2011 and 2012 we had the sovereign debt crisis. So you can basically pin point all of these major occurrences for these volatility blow outs but again, luckily they don’t happen that frequently or that often.

So the main ones that we can obviously always just focus on is the normal running of the mill events that occurs whether it’s unscheduled or scheduled on a weekly basis and they do happen quite frequently.

You know, it’s difficult to put a number on it, you know, saying that it happens twice a week or it happens three times a week. It really does depend on the expectations at the time. It depends on the market sentiment at the time, on the anticipation et cetera.

But they do happen I’ll say, on a weekly basis at least one event during that week will be a big market move in terms of volatility risk. Whether that’s a scheduled or an unscheduled event.

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