The Ultimate Guide To Risk Sentiment
You asked, we listened. Here is an A-Z on risk sentiment, what it is, how to identify it and how to trade it.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
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Okay, after lots of questions from various subscribers about risk tones and risk sentiment, we've decided to do a slightly more detailed video than usual, only focusing on the topic of risk sentiment.
(For full content watch the video or visit www.forexsource.co)
Now in the video we'll discuss three things, first one is what is risk sentiment, the second one, how we can identify it, and the third one, how we can actually go about to trade it.
Three very simple points, but with a couple of nuances that we'll be spending a little bit more time on individually.
Now starting with the first one, what is risk sentiment?
Now in a nutshell, it's basically just the mood of the market, how the market is feeling right now in terms of their risk appetite. Now the market as we know, is driven by traders who are emotional beings, so when traders are feeling uncertain and fearful. We normally call that risk-off sentiment, that means they will tend to rotate away from riskier assets and rotate towards safer assets, and the opposite is also true, when traders are feeling greedy and thinking that everything in the market is just unicorns and marshmallows. For example, we call that risk-on, and they usually rotate in those type of environments towards riskier assets and rotate away from safer assets.
So moving onto the second point, how to identify risk sentiment. Now, when we evaluate risk tones, we need to incorporate all of the various asset classes into an analysis, we can't just look at currencies or equities in isolation and that'll just get us into trouble, we need to consider all of the various asset classes as a whole.
So starting then with equities as a general guide, starting with equities is always a very good idea, because equities are considered one of the most riskier assets out there, and due to its much higher volatility, we often do see them react very fast to sudden changes in the overall risk appetite.
So when we have a strong risk appetite or a risk-on tone, we expect strength for global equities across the board. And when we have very low risk appetite or a risk-off tone, we would expect that to mean weakness for global equities or expect equities on a global scale to depreciate across the board.
Now keep in mind, equities also do have individual factors that can affect prices away from risk sentiment, some things can be individual stock performances, earnings releases, country specific issues, so those type of factors also need to be taken into account, when we see big moves in the equity market.
Then turning to commodities as a general guide, commodities are also considered as riskier assets due to the higher bate, or their higher volatility, and they can also react very fast to changes in the risk tone, but arguably not as fast as the equity markets.
Now looking at commodities like oil and copper, they are considered as riskier assets, but keep in mind you also get commodities like gold, which is considered as a safe haven.
Looking at your more riskier commodities like oil and copper, when we have a strong risk-on tone, we expect that to be supportive for higher risk commodities like oil, like copper, and when we have a risk-off tone, we expect that to be negative for commodities like oil and copper, obviously it's different when it comes to gold, gold is seen as a safe haven, so when we have a risk-on tone, gold is actually expected to move down and when we have a risk-off tone, gold is expected to move up.
Now keep in mind, as we said with equities as well, there are individual factors that can drive the individual prices for commodities like oil and copper and gold. Obviously supply and demand issues is something we need to keep in mind, when it comes to gold for example, a big consideration for gold, apart from risk tones is actual interest rates or real interest rates, that is one of the key and main drivers for gold prices in the medium to long term. So we also need to keep all of those type of things in mind and not only look at the risk sentiment itself, when looking at things like commodities.
Generally speaking though, the more higher risk commodities like oil, like copper is expected to appreciate in risk-on tones, and depreciate in risk-off and as we said for the safe haven, gold is expected to move down in risk-on and up in risk-off.
** For more information - watch the video or go to www.forexsource.co
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
Okay, after lots of questions from various subscribers about risk tones and risk sentiment, we've decided to do a slightly more detailed video than usual, only focusing on the topic of risk sentiment.
(For full content watch the video or visit www.forexsource.co)
Now in the video we'll discuss three things, first one is what is risk sentiment, the second one, how we can identify it, and the third one, how we can actually go about to trade it.
Three very simple points, but with a couple of nuances that we'll be spending a little bit more time on individually.
Now starting with the first one, what is risk sentiment?
Now in a nutshell, it's basically just the mood of the market, how the market is feeling right now in terms of their risk appetite. Now the market as we know, is driven by traders who are emotional beings, so when traders are feeling uncertain and fearful. We normally call that risk-off sentiment, that means they will tend to rotate away from riskier assets and rotate towards safer assets, and the opposite is also true, when traders are feeling greedy and thinking that everything in the market is just unicorns and marshmallows. For example, we call that risk-on, and they usually rotate in those type of environments towards riskier assets and rotate away from safer assets.
So moving onto the second point, how to identify risk sentiment. Now, when we evaluate risk tones, we need to incorporate all of the various asset classes into an analysis, we can't just look at currencies or equities in isolation and that'll just get us into trouble, we need to consider all of the various asset classes as a whole.
So starting then with equities as a general guide, starting with equities is always a very good idea, because equities are considered one of the most riskier assets out there, and due to its much higher volatility, we often do see them react very fast to sudden changes in the overall risk appetite.
So when we have a strong risk appetite or a risk-on tone, we expect strength for global equities across the board. And when we have very low risk appetite or a risk-off tone, we would expect that to mean weakness for global equities or expect equities on a global scale to depreciate across the board.
Now keep in mind, equities also do have individual factors that can affect prices away from risk sentiment, some things can be individual stock performances, earnings releases, country specific issues, so those type of factors also need to be taken into account, when we see big moves in the equity market.
Then turning to commodities as a general guide, commodities are also considered as riskier assets due to the higher bate, or their higher volatility, and they can also react very fast to changes in the risk tone, but arguably not as fast as the equity markets.
Now looking at commodities like oil and copper, they are considered as riskier assets, but keep in mind you also get commodities like gold, which is considered as a safe haven.
Looking at your more riskier commodities like oil and copper, when we have a strong risk-on tone, we expect that to be supportive for higher risk commodities like oil, like copper, and when we have a risk-off tone, we expect that to be negative for commodities like oil and copper, obviously it's different when it comes to gold, gold is seen as a safe haven, so when we have a risk-on tone, gold is actually expected to move down and when we have a risk-off tone, gold is expected to move up.
Now keep in mind, as we said with equities as well, there are individual factors that can drive the individual prices for commodities like oil and copper and gold. Obviously supply and demand issues is something we need to keep in mind, when it comes to gold for example, a big consideration for gold, apart from risk tones is actual interest rates or real interest rates, that is one of the key and main drivers for gold prices in the medium to long term. So we also need to keep all of those type of things in mind and not only look at the risk sentiment itself, when looking at things like commodities.
Generally speaking though, the more higher risk commodities like oil, like copper is expected to appreciate in risk-on tones, and depreciate in risk-off and as we said for the safe haven, gold is expected to move down in risk-on and up in risk-off.
** For more information - watch the video or go to www.forexsource.co
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
