Risk On – How To Trade For Profits

I am often a day or two early – but rarely RARELY a day or two late.

When assessing “risk behavior” one needs to look across the board at a number of currency pairs, and evaluate which are indeed exhibiting strength – broadly. A “quick jump”  in a single currency pair is absolutely no indication of a change in trend, and a silly little tweet or headline from a newbie blogger – even less.

No single currency trades in a vacuum , and with each and every move in one – there is an equal and opposing move in another. Identifying those currencies associated with “risk” and those associated with “safety” is paramount in formulating  a fundamental trading plan. 

I never trade a commodity related currency against another – and rarely (if ever) trade a safe haven against another. (Although as of late with the “devaluation war” in full effect – I am actively pitting one against the other – yes.)

Simply put – money flows out of risk related currencies and into the safe havens in times of risk aversion…and the opposite (into risk related currencies and out of safe havens) during times where risk is accepted.

This evening I will leave this with you – to  discern which is which, and invite your questions or comments in putting this very important piece of the puzzle in it’s place.

Kong gets loooooong risk.

 

6 Responses

  1. Warren January 23, 2013 / 2:42 pm

    In these times of which central bank can race to the bottom first there is no more “risk-off” pair. Although Yen and Dollar are still considered to be in this class, they are in face the riskiest pairs out there. You get more “risk-off” with the Kiwi, Aussie, and Loonie.
    Separate note I’m curious why you didn’t mention going long AUD/JPY, as it has been holding up much better on this correction than any other Yen-cross.
    I see a IHS on the 15min chart of EUR/JPY, neckline at 118.30, I’m setting a breakout order for tonight just above this level(118.40).
    La Mono esta largo!
    Saludos de Chile,
    Warren

    • Warren January 23, 2013 / 2:45 pm

      Oops, quiero decir “EL Mono esta largo!”

    • Pot Stock Watch January 23, 2013 / 3:36 pm

      Very nice Warren – I like where your head is at.

      I am also long AUD/JPY as it looked great today.

  2. TW January 24, 2013 / 1:35 am

    Senor Kong,
    I’ve been languishing in the metals and miners with others on the ‘other side.’
    I’m trying to pick up clues from you even if Gary pays little attention.
    So we want to see strength in the Ausie dollar, the Canadian dollar, the Kiwi dollar, the Rand, the Chilean peso, I suppose.
    What pairs do you find point to strength in the metals complex?
    Again, I’ll take a stab at it: CAN:USD, AUD:USD, NZD:USD.
    EUR:JPY, EUR:USD, GBP:USD can’t hurt in this environment.
    Maybe you have a table that you refer to in identifying turns.
    Anyway, you invited feedback to your puzzle and I’m all ears.
    I need the schooling.
    Salud!

    • Pot Stock Watch January 24, 2013 / 2:43 am

      You’ve really got this down pretty good Edward…yes the commodity related countries currencies as you’ve noted above.

      Not so much the EUR or GBP in this case. The $DXY is a basket of currencies so does not tell the story nearly as specifically as following them individually. AUD is directly related to China as their number 1 trading parter so……good news out of China is seen in AUD movements.

      With both the USD and JPY being safe havens (and with both being agressively devalued thru QE) we want to see the commods making gains against them in times when risk is sought.

  3. Pot Stock Watch January 24, 2013 / 8:04 am

    If anyone is taking note here this morning – the commods are (have) taken off against JPY, but interestingly have stalled/fallen back against USD. As suggestes in earlier posts – “buying around the horn” allows a trader to “limp in” with smaller orders – and in turn have lots of dry powder if in fact price moves against the trade.

    In the case of the Commods vs USD I would see this as a perfect example – if indeed you are of the mind set that “risk is on”.

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