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Risk Sentiment

I'll start by explaining the concept of risk sentiment and why it is important to monitor when trading Crypto! Down pointing backhand index

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Monitoring 'Risk Sentiment' across markets is important as it indicates which assets are likely to perform well and which aren't - based on the market 'risk' dynamic at the time, which is said to be either 'risk-on' or 'risk-off

What is 'risk-ON'?

This phrase indicates that the market is in an environment where sentiment is positive about the global economy & therefore market participants are putting 'on' more 'risk'.

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In this environment, 'riskier' assets (Crypto) perform well - while 'safer' assets (Bonds) perform poorly. Identifying when the market is 'risk-ON' would help you time a favorable long entry on

#BTC⁠

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What is 'risk-OFF'?

Simply it is the opposite of 'risk-ON' and occurs when market participants have a lower appetite for 'riskier' assets (think fearful of global events) and want to preserve their capital.

Understanding when the market is 'risk-OFF' can help you manage your exposure and conserve capital when things are getting dicey.

As an example, if you were long

#BTC⁠

and identified that the market was shifting to 'risk-OFF' you could manage that position much more efficiently!

Examples

Now that you understand the concept of 'risk-sentiment' - we can look at charts that visualize this idea.

Identifying when specific assets move higher or lower can tell you A LOT about the market's appetite for risk I'll explain each of the below in detail, keep reading!

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Chart # 1 on my 'RISK ON/OFF' watch-list is the AUD/JPY - The Australian Dollar vs Japanese Yen Currency pairing The AUD is VERY risk sensitive - relying on positive economic growth to appreciate in value.

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Whereas, the Japanese Yen is considered a 'safe-haven' currency and therefore relies on a risk-OFF dynamic to appreciate in value!

Therefore it is easy to understand why the AUD/JPY pairing moving lower would indicate 'risk-OFF' and vice-versa.

Visually, you can see how the AUD/JPY pairing helps to understand the likely direction of

#BTC⁠

Bitcoin moves higher when the environment is 'risk-ON'.

See the chart below, AUD/JPY on top and

#BTC⁠

on the bottom!

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Chart # 2 on my 'RISK ON/OFF' watch-list is the S&P500 Futures chart (ES1!), this chart tracks the performance of the top 500 US-based companies listed on Stock Exchanges.

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This index effectively shows the market risk dynamic as it relies on economic growth and positivity to appreciate in value!

When the chart moves higher - 'risk-ON' 🚀

When the chart moves lower - 'risk-OFF' 🔻

You can see the strong correlation with

#BTC⁠

below.

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Chart # 3 on my 'RISK ON/OFF' watch-list is the S&P500 Volatility Index chart (VIX), this chart tracks the volatility of the stock market via fluctuations in the S&P500 Index options!

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Volatility is typically is higher in a 'risk-OFF' dynamic - the markets like to take the stairs on the way up and the elevator on the way down, so naturally volatility is heightened in a risk-OFF or fearful environment

That's what you see here on the S&P500 Volatility Index, comparing it with

#BTC⁠

and you'll find that that dynamic is no different! (BTC is inverted below due to the inverse correlation - higher volatility = Bitcoin lower)

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Chart # 4 on my 'RISK ON/OFF' watch-list is the 10-year US Government Bond (US10), this asset performs well in a 'risk-OFF' environment 🔻.

The security of government-backed bonds provides a safe-haven for investors during times of market turmoil!

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Knowing that the US10 moving higher would promote or indicate a 'risk-OFF' dynamic, you can understand that

#BTC⁠

is likely to move lower in that scenario US10 and BTC are overlaid on the chart below - the relationship is clear! US10 up = BTC down

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Chart # 5 on my 'RISK ON/OFF' watch-list is Crude Oil (USOIL), it performs well in a 'risk-ON' environment. 🚀

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As economic growth increases, so too does the price of oil (increased consumption, expectations of inflation etc.) - a strong global economy bodes well for the price of oil.

Oil can be used as a measure of future inflation and if you are considering

#BTC⁠

as an 'inflation hedge' the two assets should theoretically move together! So, Bitcoin and Oil have two common properties: 1. Measure of inflation 2. Move higher when risk is ON (risk-on).

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Chart # 6 on my 'RISK ON/OFF' watch-list is Gold denominated in the Australian Dollar(XAUAUD), it performs well in a 'risk-OFF' environment. 🔻

I don't use the USD pair for risk sentiment, as I find that having a 'risk-sensitive' base currency gives a clearer insight!!

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As per the AUD/JPY pairing information earlier, the AUD moves lower in a risk-OFF environment. 🔻

Gold is a 'safe-haven' asset and therefore moves higher in a risk-OFF environment.

This makes the XAUAUD chart a great indicator of investor risk appetite! ✅

Chart # 7 and the final chart on my 'RISK ON/OFF' watch-list is the Copper/Gold ratio, it performs well in a 'risk-ON' environment. 🚀

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Copper typically appreciates on positive economic growth, copper is a material that is heavily used in infrastructure projects all over the world!

As demand for copper grows, price of the precious metal grows and that can indicate that the global economy is in a good place = risk-ON ✅

Conversely, Gold acts as a 'safe-haven' asset in times of market turmoil - so you can see how the 'risk-ON' qualities of Copper and the 'risk-OFF' qualities of Gold lead the Copper/Gold ratio to be a great measurement of investor risk appetite!

If you're struggling to get the Copper/Gold chart on

@tradingview⁠

, follow the steps below but do it with Copper and Gold!

That wraps up part # 1 of my

@tradingview⁠

watch-lists, there are more watch-lists to come over the next week so please like and retweet this thread if you enjoyed!! Thanks for reading and I hope that you found this information useful

What is 'risk-ON'?

What is 'risk-OFF'?

Examples

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