Talking Points:
- Navigating major uncertainties in the financial system is a necessity for active traders and investors
- Three considerations for trading unknowns: establish its severity, tangibility and timing
- We assess how trading approach changes for unknowns like the Brexit, ECB policy, Fed rates, China intervention and risk
See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.
'How can you trade this with such a serious risk ahead?' It is a common question posed by traders and not infrequently steeped in accusation. Trading an asset or market that faces a credible and serious risk through the foreseeable future carries a degree of danger. But not all risks are ravage the markets equally. If we waiting for all risks to pass, we would never enter the market. If we ignored or de-emphasized such considerations, the threat to our longevity in the markets would be dire. We need a happy medium and a process for which to establish how we should handle the known unknown. There are three general considerations we should process when weighing events/risks' influence over our trading activity: how severe is it, how tangible or imminent, and is there a clear time for which it is expected to unfold. If it is has a clear time and date for release but its scope is limited, we may be able to simply trade through it. However, an event with serious influence but no definable time can cause a semi-permanent disruption for the markets and put any exposure we have in peril. We weigh these factors against prominent concerns surrounding the Brexit vote, ECB monetary policy, Fed rate timing, Chinese intervention and the threat of a global risk trend collapse in today's Strategy Video.
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