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What Geopolitical Risk Really Means to Your Trading

zhsy
Mar 14 at 08:56
7 Posts
I’d venture to say that nowadays, geopolitical risk is a factor you think about quite regularly in your trading, yet it may also be a term that’s relatively new to your vocabulary. Perhaps it’s a sign of changing times in the markets, and indeed, in the world, but it’s only after the financial crisis that most began paying attention to geopolitics. Afterall, in the past, credit crises and bailouts, not to mention buzzwords like “Brexit,” “Flash Crash,” and other phenomena weren’t as front and centre as they are today.
The fact is, though, that in a tumultuous and divided world where horrors like terrorism, religious persecution, and violent military conflicts are present every day, geopolitical events are perhaps the most prominent of all market-moving events. So prominent is geopolitical risk, in fact, that it should play a role in your trading…just maybe not the role that you think.
You see, longer-term swing traders like those of us who follow the Lazy Trader methodology will analyse and process geopolitical risk differently than, say, intraday traders. So while it is a factor to consider, here are a few ideas for decoding its shorter-term impact and remaining confident and committed to your longer-term positioning in the markets.

First, What Is Geopolitical Risk?
Traders and investors have seen plenty of geopolitical risk return to the markets here in the first part of 2017. Donald Trump becoming US President, for example, created a great deal of geopolitical risk due to his divisive and controversial nature, for one, but especially because of Trump’s comments about his desire to change the way the US conducts business and trade with the rest of the world. That, almost by definition, is what is meant by the term ‘Geopolitics.’
The fact that world equity markets moved sharply lower in response to Mr. Trump’s victory in the Presidential election was a textbook example of geopolitical risk in action. But so, too, are any and all market reactions that come, say, in response to any escalation in the global tensions with Russia and/or North Korea, the ongoing conflicts in Syria, Ukraine, and elsewhere, and following terror attacks, whenever they (very tragically) occur.

What it Means to Longer-Term Traders
Particularly in this modern era, when news and headlines from around the world consistently move markets, geopolitical risk is a factor that every trader must watch if they want to do some news trading…but I’d assert that longer-term traders needn’t fear geopolitics in quite the same way intraday traders would. And here’s why:
Because while news and geopolitical risk make markets behave unpredictably in the short term, over time, dominant forces like that market’s prevailing trend, and the technical and perhaps fundamental forces that traditionally drive markets, still tend to win out.

Considerations for trading around geopolitical risk
Entry Strategy: Markets will move sharply on the back of sudden escalations in geopolitics, like from military strikes and terror events, meaning traders can get whipsawed or faked out at or near their entry points. And while longer-term traders can smooth out those price swings by trading end of day, and/or trading on longer time frames like the daily and weekly, geopolitical factors can make it hard to catch an entry on any time frame. So stay patient when trading amidst geopolitical risk, and if you miss the first entry, keep that asset or currency pair on your watch list for next time, because while geopolitics temporarily elevate risk, they’re unlikely to permanently alter a market’s technical and fundamental picture.

Risk Management: Heightened geopolitical risk can make for a fine reason to take profits on open positions, particularly those that have reached initial targets. By locking in hard-earned gains, traders preserve and protect capital from heightened risk and become better positioned for trading once geopolitical risk has cooled.

Psychological Impact: Some geopolitical risk, like the 9/11 terror attacks, or war in the Middle East, create outright panic across markets and investors and traders alike. Choose not to trade whenever geopolitical risk is too serious, and avoid the irrational, fear-based trading that often ensues during these times.
Seb King (sebking1986)
Mar 14 at 09:11
405 Posts
The issue I find with geopolitical risk like wars is unpredictable news releases. I don't trade around news events normally but times like these are one massive news event 24/7. It makes trading much harder so there is much more sitting on my hands than normal.
If you can't spot the liquidity then you are the liquidity.
skihav
Mar 14 at 10:20
801 Posts
I think today we can clearly see what it is and what it leads to.
ABC11
Mar 15 at 13:45
11 Posts
I agree with you that in such a turbulent time it makes sense to wait. All my trading attempts now, for the most part, end in losses. Or a very small profit.
Unfortunately, the situation in the world is not encouraging. But it won't last forever. We need to be patient.
CraigMcG2020
Mar 15 at 20:11
331 Posts
It is definitely something to consider but if you're on lower timeframes and not position trading i think its something to be weary of rather than that lots of heed from. It is key to analyse the markets in a probabilistic way with technicals for me when day trading. I suppose it all depends how you would like to trade the markets
Seb King (sebking1986)
Mar 16 at 10:15
405 Posts
The markets are still adhering to technical levels as I see them but movement into them is less predictable than normal for sure.
If you can't spot the liquidity then you are the liquidity.
skihav
Mar 16 at 17:13
801 Posts
Now there is such a situation that you won’t even fully understand what is worth buying, and what is the other way around - it’s not worth keeping.
Shalidor
Mar 16 at 20:07
29 Posts
The forex market touches every country’s economy is a highly inter-connected marketplace, it is extremely sensitive to geopolitical events that can cause an immediate effect on the prevailing currency rates. Under the umbrella of geopolitical events, there are many categories, ranging from local elections to budget negotiations and referendums to missile launches. Sometimes, these happenings fly below the forex market’s radar and other times, these events have a sizable effect. Often, a country’s interest rate can soar or plummet depending on its foreign and economic policies. Conflict of interests and geopolitical shifts are also responsible for major currencies’ fluctuation. It’s also important to remember that people are behind these decisions and mistakes are also bound to occur along the way.
LabuyaChicay
Mar 19 at 06:35
57 Posts
The global economic policy, interest ratem political unrest play a vital role in the movement of the market. Those who are fundamental analysts take these issues under consideration. Generally, for making a better signal, technical analysis should be accompanied by fundamental analysis indeed.
Tilokvarma
Mar 23 at 06:02
49 Posts
Considering geopolitical risk is highly essential because it’s a part of fundamental analysis. Geopolitical unrest turns the market into slump. Global economy starts to decline and so it’s a part of fundamental analysis. Your analysis is not affluent as long as you don’t consider geopolitical risks.
croisssan
Mar 23 at 10:45
939 Posts
Given the current situation, there may be quite a lot of risks. It is important to understand this in order to reasonably assess all the risks of the market.
Hotfoote
Mar 25 at 05:26
29 Posts
Forex market is highly sensitive to geopolitical risk since it is a very inter-connected market. It is highly dependent on what goes on in different countries because the geopolitical changes in a country will have a direct impact on its currency. For example any turmoil in a country may lead to a fall in the value of its currency. So geopolitical factors must be kept in mind in forex trading.
Superfluous
Mar 28 at 05:43
38 Posts
The forex market has become highly volatile and unpredictable due to geopolitical conflicts. But now the market has begun to come back to the track. I am hoping for the best.
skihav
Mar 28 at 11:36
801 Posts
Now in this regard there are a very large number of risks, unfortunately.
Suradi (FXOday)
Mar 29 at 00:29
311 Posts
Yes, I think geopolitics is matter in the financial market when war becomes a problem and dragged on the international market, in general, the war will disturb the chain supply and tension between countries to another country in conflict, but as long as still make money from forex business, at least trader can fulfill for daily life spending.
Marcolis
Mar 29 at 04:34
65 Posts
What majority of the traders do is they use some technical tools to analyze the market but they don’t undertake the issues of geopolitical risk. It is because they don’t know where technical tools works 50%, fundamental analysis works 99%. Lacking of the knowledge of fundamental analysis leads them not to reach the doorstep of success.
LabuyaChicay
Mar 29 at 06:15
57 Posts
Traders should nurture the tendency of fundamental analysis to catch the market trend nicely and accurately because technical analysis can’t help a trader the way fundamental analysis can. So, traders should develop the mindset of making fundamental analysis over the market.
CraigMcG2020
Mar 29 at 07:03
331 Posts
LabuyaChicay posted:
Traders should nurture the tendency of fundamental analysis to catch the market trend nicely and accurately because technical analysis can’t help a trader the way fundamental analysis can. So, traders should develop the mindset of making fundamental analysis over the market.

I would politely disagree, fundamentals are often priced in months in advance add to that war or something similar markets are erratic as they react to every single piece of information. Technical trading when no red folder news can give you some perspective and understanding of order flow in a relatively stable market
synaphea
Mar 29 at 07:43
38 Posts
There are huge chances of uncertainties that surround future expected economic growth and the health of the affected economy. This results in high fluctuation in the currency values of the countries at geopolitical risks.
Davidwise
Mar 30 at 04:22
18 Posts
Any major geopolitical event has a direct impact on the market. We all saw huge volatility in the market when the war broke out. The market has somewhat recovered in the past few days, but still, nothing can’t be said for sure as to what the future holds
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