Market sentiment, or “investor sentiment refers to the overall attitude of investors toward a particular security or financial market. The market sentiment can be revealed through the activity and price movement of the securities traded in that market. Keeping track of market sentiment is incredibly beneficial for day traders and technical analysts to strategically trade with (not against) market sentiment. For example, some traders make a profit by finding a commodity that is undervalued or overvalued based on market sentiment. How can traders monitor market sentiment and how risky it is to invest in specific instruments like Gold, Oil, Copper, Silver, S&P 500, and Bonds? This case aims to help you best utilize the services of BetterTrader.co, particularly the Risk-on & Risk-off Feature, in order to learn how to monitor market sentiment.
Let’s consider a recent case example. Boris Johnson, the Prime Minister of the United Kingdom was diagnosed and tested positive for the Corona Virus on March 27th. Soon on April 5th, he was admitted to a hospital for intensive care as he was showing the symptoms. By April 9th, he was moved out of intensive care. However, during that time period and after while he was recovering the situation had been rapidly changing with unclear updates. This was because there is no clear way to handle the death of a prime minister in their laws. This news can heavily impact market sentiment, particularly when concerning investments tied with the UK as this event has put the government in a precarious position due to the uncertainty of the situation and where power and policies will lie in the potential case of Prime Minister Johnson’s death. The Risk-On and Risk-Off tool will allow for traders to gauge the situation more reliably (in real-time) without the media impacting their viewpoint on the leader’s situation.
Overview of Risk-on & Risk-off Feature
The RORO (Risk-On\Risk-Off) shows market sentiment for each asset class which can be really beneficial for trading and figuring out when to pull money from investments or invest in certain instrument in order to trade with market sentiment. Risk-on refers to the Risk-on Market. A Risk-on Market is when risk is perceived as low and traders tend to engage in high-risk trades. Therefore, there is typically an increase in the stock market and the demand for high yielding currencies. On the other hand, Risk-off refers to the Risk-off Market. A Risk-off Market is when risk is perceived as high. Therefore, traders tend to engage in low-risk trades which means that investors pull money from stocks and sell high-yielding currencies. During this time period, treasury bonds became a popular investment.
The image below is a screenshot taken from BetterTrader.co’s Risk-on and Risk-off feature during April 2020 during the Corona Virus Pandemic when Boris Johnson was admitted in the hospital.
At the time the screenshot was taken, you can observe the market sentiments regarding the different instruments using the chart. While S&P500 is considered Risk-on, Silver is considered Risk-off.
With our 24/7 news cycle world, the features of Better Trader helps traders to evaluate situations based on data. As you can see from this case example, this feature is very applicable to many situations and can be used on a daily basis to monitor the mood in the markets. Utilizing exclusive features such as risk-on/off allows you to gain perspective on the factual view of the market’s status.