Risk-On / Risk-Off (Macro Bias Filter)
Also: risk on, risk off, risk-on risk-off, dollar risk filter, macro bias filter, dollar correlated macro
Risk-On/Risk-Off is the macro bias filter that aligns the US Dollar direction with expected equity index direction for ES/NQ trading. Risk-On: US Dollar is declining (bearish dollar) → equities expected to rise (ES/NQ bullish). Foreign currencies (Euro, Pound, Yen, etc.) rise against the dollar. Traders look for long ES/NQ setups. Risk-Off: US Dollar is rising (bullish dollar) → equities expected to decline (ES/NQ bearish). Foreign currencies fall against the dollar. Traders look for short ES/NQ setups. The preferred dollar proxy when it has scheduled high-impact news is USD/CAD (Dollar-CAD): a lower USD/CAD (CAD strengthening) = risk-on; a higher USD/CAD (CAD weakening) = risk-off. This proxy is used because CAD often has its own economic releases (e.g., Canadian employment, Bank of Canada events) that can provide additional confirmation of the macro direction when they align with US data.
Identification4
- Check the US Dollar Index (DXY) or a major dollar pair daily chart: is the dollar making higher highs/lows (risk-off) or lower highs/lows (risk-on)?
- When USD/CAD has high-impact news: use USD/CAD as the proxy — lower USD/CAD signals risk-on (ES/NQ bullish); higher USD/CAD signals risk-off (ES/NQ bearish).
- Confirm the macro filter with the weekly ES/NQ chart: is the weekly structure supporting expansion in the direction indicated by the risk-on/risk-off reading?
- This filter is assessed once per week (at the weekly chart review) and updated daily if major dollar moves occur.
Invalidation2
- The dollar and equities move in the SAME direction simultaneously — risk-on/risk-off correlation breaks down (divergence). This occurs during stress events (e.g., flight to quality where both dollar and equities fall, or dollar safe-haven bid during equity crash).
- When the correlation breaks, do not use risk-on/risk-off as a filter — rely instead on direct structure analysis of ES/NQ.
Inferred Conditions (Unvalidated)
- This filter is applied at the weekly/daily bias level (Step 1 of the daily-bias-framework.yaml) — it is not an intraday signal.
- The risk-on/risk-off filter does NOT override a strong ES/NQ PD array setup — it is a confirming filter, not a veto. A strong FVG entry at the correct kill zone can still be taken even if the macro filter is ambiguous.
- USD/CAD is preferred over DXY when it has news because commodity currencies (CAD, AUD) often lead the risk-on/risk-off sentiment due to their correlation with commodity prices and global growth expectations.
ICT Quotes
"lower dollar CAD, higher SMP"
Timeframes
Version History1 version
ICT YT - 2022-06-22 - ICT Mentorship 2022 Episode 40.srt
""lower dollar CAD, higher SMP" "dollar down = risk on (ES/NQ up, foreign currencies up); dollar up = risk off; use dollar CAD as proxy when it has high-impact news""
The risk-on/risk-off macro filter is applied in the 2022 mentorship specifically to the ES/NQ index context. The USD/CAD proxy preference is stated in Episode 40 as a practical tool for sessions when Canadian economic data aligns with US data to reinforce the macro signal.
Notes
The risk-on/risk-off filter is the macro layer of the daily bias process. It is assessed at the weekly chart review and provides directional bias for the week. The USD/CAD proxy is particularly useful when Canadian economic releases are scheduled on the same day as US releases, as the two together create a stronger signal. Related: smt-divergence-dollar-treasury.yaml (dollar/treasury macro), daily-bias-framework.yaml, dollar-treasury-correlation.yaml, intermarket-analysis.yaml
Asymmetry Notes
Inverse relationship between dollar and equities defines both states: Dollar down = Risk-On = Equities up. Dollar up = Risk-Off = Equities down.