[NIC] Hi guys, welcome to another episode of Life of a Trader. Today we’re going to talk about how do we monitor different asset classes to help us in our trading in a short time horizon. And Vee will expand on what he mentioned on his Slack Channel yesterday. How are you Vee?

[VEE] HI Nic. So, yesterday on our chat forum, I said FX which was leading the risk aversion move seems to have reached some stability. I think it will be helpful for us to clarify a little bit. So, as you can see here, the black line is NASDAQ Futures, the blue line is the Aussie, which was leading the weakness again, and then it accelerated, right? See that then basically Aussie showed a weakness then finally, Europe started to sell the stock futures as well and then NASDAQ accelerated. But then here, NASDAQ started to show some bottom at seven o’clock (19:02). Then I said FX which is leading the risk aversion seems to have bottomed out, right? Seems to have bottomed out a bit. So even when NASDAQ tried to sell off here, Aussie started to go higher. So, the risk aversion which was led by FX Market seems to have stabilized. Of course, sometimes it works, sometimes it doesn’t work, I just take guidance. If anybody who was watching the market, you would remember it was the FX Market which was uncharacteristically weak the whole day even before stocks futures sold off. NASDAQ was pretty stable, right? See here – NASDAQ was pretty flat lining but then Aussie happened to trade lower even though there was just some renewed outbreak fears in Sydney.

So, I use different asset classes and monitor them. That’s why I always strongly suggests that even though you just trade FX or you just trade equity futures, commodity futures, it’s good to have your own screens with different assets classes right? So you can monitor and you could see the correlation overtime, you can see what’s going on. So, on a short-term basis, this would have helped me if I was short Equity Futures, I would have covered the short when Aussie started to destabilise, right? Or if you are looking to buy on dips there was a chance to buy. So, another thing to notice after the US opening hours, you have this Spike up in equity futures and then it came off quite hard after that immediately.

And you can see that there was no apparent sell-off in the Aussie, Aussie didn’t move. Basically it went up higher so you could see that the sentiment was not as bad as it was already. So, market which was short Aussie, lots of people got excited and probably shorted Aussie on the way down. They probably thought if Equity futures take a lower over then Aussie should take a tumble lower. But instead, it didn’t right? It started short covering and went higher. So It’s not a scientific method, right? It’s not like there’s a formula to this. It’s just that you have to watch it over time and observe what’s leading what right. Of course, if you are not at the desk, you’re not looking at screens, it’s very difficult to know what’s leading what, but it’s good to look at the chart as well. So, this is only on a short-term basis. We are looking at a intraday five minute chart to explain to you what I meant by this comment right? I think just by the comment alone, it may not make sense to anybody who’s not looking at the markets or don’t know what I mean. Hopefully, this explains it. Okay. So this is only on a short-term basis but on a longer term basis, there’s also correlations like that. That’s why we like to look at different asset classes and decide which asset class is out of whack, which one is going to react. Yeah, Sometimes it leads, sometimes it reacts but of course, the trick is knowing what’s leading, what’s lagging and what’s correct. So okay, any questions here Nic, what do you think?

[NIC] I think it’s good explanation on how you use cross asset classes. So now it’s it seems like FX is somehow leading risk, right? At the start of the crisis, FX was mostly in a lull and it was the stock market leading risk appetite. I think it’s good that you explain this to give some context on how we use different asset classes and that’s why when you say that we trade Global macro, we are not siloed to within a single asset like currencies, right? Because opportunities, they do present themselves in many other places as well.

[VEE] Yeah, that’s exactly right. So no point narrowing your view to just one small part of the playing field. You should look at the whole thing and many things as you can and try to make sense of it and then it will help you form a more rounded and informed view of the overall picture. Okay, Thanks, Nic. As always be true to the process and eventually you’ll achieve a lot of success. Goodbye.