Risk Aversion

Beginner Questions
1

Stupid Newbie Question…

Can someone put this into laymans terms for me?

EU Morning Report - S&P says that it may downgrade Greek debt once again, risk aversion grips the market!

Ta
Cares :confused:

2

Risk Aversion: Don’t hop in the water with a shark. :eek:

But what happens when we are averting risk with Greece?

:confused:

3

The statement above should be read in conjunction with " In Europe fear gripped the market again as S&P warned of another possible downgrade of Greek debt to BBB+"

At the moment how many traders are willing to invest in Greece?

Instead they are tending to stick with safehaven investments, or standing on the sidelines, rather than take higher risks.

4

I would have thought Gold to be a safe haven but it has been going down with each bit of bad news about Greece! :confused:

5

Risk aversion is a huge concept in FX trading, so I recommend you study this concept very well from a variety of different sources.

But I’ll give you a shortcut, and tell you what the general effect is on the currency markets when “risk aversion” is in the air.

2 big things happen (generally)

  1. money flows into the world’s reserve currency (currently the USD)

  2. money flows from higher yielding currencies into lower yielding currencies

and of course when the financial world is in a “risk-seeking” mood, the opposites are true.

6

  1. [B]money flows[/B] into the world’s reserve currency (currently the USD)

  2. [B]money flows[/B] from higher yielding currencies into lower yielding currencies

and of course when the financial world is in a “risk-seeking” mood, the opposites are true.

& you want to get in synch with money flows.
It’s the rhythm of the market & constantly adapting to its rhythm is what the smart operators do.
Beats logic & formed opinions based around a bunch of lagging indicators everytime.

7

How do you get in synch ?

8

Uh oo, that almost sounds like trend trading.

So, get in with the way the pair is flowing or, “trending,” or it’s, “rhthym,” and let it take you down the river or with the flow? Do I have that right?

9

I’ll answer: First discern the larger trend, because this dictates over time wether long or short will have more strenght. Then wait for a retrace point and get in.

Very simple, I do this on daily charts using ichimoku and 200, 50, 10, &10 moving averages. I use weekly as the boss filter.

If you want to talk about flow and ryhthms, this is one of the very valid ways to do it. Price always occilates in waves, wether it’s long or short. So, wait for the retrace/wave back up, and get in short if it’s a short trend.

The SL should be at a point that invalidates the continuation of the trend. That shouldn’t be right over the top of the wave/ retrace you entered at. The retraces/waves can have wild spikes.

I find using ichimok’s chikou spand to plot the nearest two S&R works very well for SL and TP. But be careful the span plots the candldes bodies not it’s tails. So, what I do is look at the candle that plotted the line and place my actual SL above/below the whick. The whick, is usually a very big peak/valley so it makes a good point to set a SL that invalidates the trend, for at least the near future.