However, as mentioned many times in this post, I would caution you against succumbing to the herd instinct and just trading risk-on or risk-off because others are doing it too. You should first determine your risk type and then set up a risk management strategy. This is the only way you can strategically trade Risk-On Risk-Off.
But how do you know which risk type you are? Basically, there are three risk types in trading:
- Low Risk
- Medium risk
- High risk
Low-risk investors mainly want to use their own investments to escape negative interest rates on their own bank account and, if necessary, to do something for their retirement. At the same time, however, this means that these investors are not prepared to deal with stock market news and market changes on a daily basis. For this reason, such investors are also referred to as passive investors, who are correspondingly risk-averse and can be assigned to the risk-off approach.
Investors who are willing to take a medium risk can trade Risk-On and Risk-Off depending on the market. These investors want to invest the money strategically, but with attention to risk and a sound investment strategy.
Lastly, there are speculators who trade risky and thus go Risk-On. They enjoy short-term trades and therefore like to be scalpers, daytraders or intraday traders. With leverage, you can make profits from prices especially quickly and take full risk when trading.
Risk-On Risk-Off trading: Trading Strategies
Risk-On Risk-Off trading is determined by different trading strategies. You yourself should know the markets so well that you can recognize transitions from Risk-On to Risk-Off. In addition to observing the reports within a market, technical analyses are also indispensable in order to recognize changes in the market at an early stage.
You can recognize such changes in the chart technique by means of trend. Trends in exness mt5 download are market movements that tend in one direction and have a clear line. How you trade with the trend, I have told you in detail in a post. The short version is: if you can identify trends, it is at the same time possible for you to recognize risk-on and risk-off phases. During the trend, investors go Risk-On and as soon as the trend flattens Risk-Off.
Now I would like to introduce you to one trading strategy each that you can use for Risk-On and Risk-Off.
Trading Risk-On: Exploit leverage
Leverage trading, also called margin trading, is the best way to increase investment capital as quickly as possible. Trading with leverage is based on the leverage effect. Knock-out certificates, derivatives, shares and other securities can be traded with leverage as a put or call position. The leverage is calculated from the ratio of the price of the underlying asset and the premium multiplied by the subscription ratio. The leverage can thus vary depending on the investment. The higher the leverage, the more speculative the risk. However, there is a hedging option for risk-on investors: you can set a stop-loss or a take-profit and thus hedge profits up and down. This minimizes risk and can give you peace of mind when trading.
When you trade with leverage, you can speculate on rising and falling prices. Thus, a market sentiment does not necessarily have to be in an uptrend. You can wonderfully exploit volatile fluctuations by changing the market between risk-on and risk-off to increase your own return.