Knowing exactly how risk sentiment works will help you preserve your capital by managing all the risks and emotions involved. With this in mind, this section of the Price Action Trading PDF will focus on risk sentiment. To give you a good idea of why a market may be behaving the way it is, you should examine risk sentiment. Markets will fluctuate on a daily basis and this is reflected in risk sentiment.
To understand economic data and the latest financial news, your understanding of risk sentiment should help you avoid financial panic in the face of instability. Sometimes risk sentiment changes slowly, sometimes quickly. From time to time, a market may be "risk-on" for a few days or even months and then suddenly switch to "risk-off" mode.
However, if you register an Exness personal area trading account to take advantage of risk sentiment while keeping an eye on market news, you have a much better chance of understanding the ambiguity and complexity that is sometimes reported in the financial media. If there is a disappointing release of economic data in terms of the economic landscape improving, there may be little or no change in risk sentiment.
When economic environment data is released and focuses on a deteriorating market, sector or economy, it can have a huge impact on risk sentiment and is seen as a very discouraging outcome. The importance of the news has a huge impact on the change in risk sentiment. In this case, the market could simply ignore the published data and still continue to buy risky assets!
When the market goes into "risk-off" mode, the experienced trader may sell all risky assets but hold on to the "safe havens". This could result in your trading being restricted with price action, which would prevent a significant uptrend. Of course, there is also the possibility that prices could fall quickly.
With this in mind, the next section of our price action trading PDF looks at measuring risk sentiment.
How do you measure risk sentiment?
Whether or not you are in a risk-on or risk-off state, you need to keep some of the key metrics in mind when trading the live market (see below). They will be very helpful in understanding risk sentiment and the potential impact.
US equity indices
Of all the real-time benchmarks to keep an eye on, market indices in the US are some of the most transparent out there. Some of the most commonly studied US indices are:
- S & P 500 (Standards and Poor, stock market index).
- NASDAQ Composite
- Dow Jones Industrial Average (DJIA)
The indices listed above apply not only to the US market, but to the entire global economy. If you want to study the reports on which direction these indices are going, you can access financial media at different times of the day, e.g. CNBC, MarketWatch, Reuters and Bloomberg.
Eleena Timmons