Thread by @tedtalksmacro

For those new to trading, it is so important to understand whether we are risk-ON or risk-OFF at any given point in time...

It is also important to decipher whether or not we are at key levels that are likely to send risk in the opposite direction.

A THREAD

1) VIX - The Volatility index represents the market's expectations for Volatility over the coming 30 days.

A move higher in VIX = RISK-OFF.

The market is scared of volatility and therefore seeks safe-haven assets. When VIX moves higher, BTC moves lower, for example.

2) See VIX overlaid with BTC.

As the FED stepped in to suppress market volatility in March/April of 2020, VIX topped, BTC bottomed.

3) Copper - Higher copper indicates RISK-ON, China is the world's largest consumer of the precious metal and higher prices typically means that China's economy is doing well... A happy China has flow on effects to investor confidence across the globe.

4) Copper overlaid with BTC.

The correlation is clear, BTC loves a risk-on environment.

5) ES or S&P500 - This one should be obvious, but moves higher in this index indicate a RISK-ON environment. The SP500 measures the performance of the US's top 500 companies.

Look back at my previous charts in this thread and observe how the recent moves lower are linked.

6) Summarising:

RISK-ON thriving instruments (i.e. move higher when risk-on):
- BTC and majority of Crypto
- Traditionally high yielding currencies (think typical carry trades)
- Copper
- Chinese Yuan
- Stock Indexes

(there are more, but the above covers most)

7) RISK-OFF thriving instruments (i.e. move higher when risk-off):
- Government Bonds (yields move lower)
- Safe-haven currencies (Yen, Swiss Franc, US dollar)
- Gold

8) To give a recent visual, comparing the below charts and their recent moves, we can see that the environment turned RISK-OFF on the 25th Feb 2021.