From "TACO" to "FAFO" to "NACHO", retail investors are reconstructing Wall Street's trading logic using internet slang. The unpredictability of Trump's policies and the outbreak of the war in Iran have given rise to a new trading system that bets on policy retreat, absorbs shock while waiting for reversal, and chases energy premiums. As gold prices fall from a high of 5600 dollars and oil prices nearly double, the cross-asset "whiplash effect" is pushing the market towards a deeper repricing critical point.

Written by: Zhao Ying

Source: Wall Street Journal

The unpredictability of Trump's policies during his second term and geopolitical conflicts are giving birth to a new trading logic dominated by retail investors.

"TACO" (Trump Always Chickens Out), "FAFO" (F*** Around, Find Out), "FOMO" (Fear of Missing Out) - these acronyms derived from internet slang have permeated traders' daily vocabulary from social media. Retail investors are systematizing the uncertainty of Trump's policies, transforming it into actionable short-term trading strategies.

This trend is reshaping how the market responds to policy shocks. From tariff disputes to the war in Iran, the sharp volatility and rapid reversals in cross-asset prices have created risks while providing opportunities for traders who are adept at timing. Meanwhile, the diverging trends between oil prices and gold, along with repeated spikes in long-term U.S. Treasury yields, are intensifying cross-asset linkages.

TACO Trading: Buy on Dips, Bet on Policy Retreat

The core logic of the TACO strategy is a systematic doubt about the effectiveness of Trump's policy execution.

In April 2025, Trump announced sweeping import tariffs on most trading partners, causing global stock and bond markets to plummet. However, as the White House began negotiations with other countries, some investors started betting that the tariff threats were being over-interpreted, believing that Trump would ultimately yield to avoid deeper economic damage.

Subsequently, the swift shift in U.S. military actions concerning Venezuela and Iran further reinforced this narrative. Investors became increasingly inclined to test how much market pressure the Trump administration could actually withstand. Deutsche Bank's "Stress Index," which combines changes in short-term support rates, inflation expectations, stock market performance, and bond yields, showed that market pressure had risen to its highest level since Trump's second term began in March of this year.

eToro’s global market strategist Lale Akoner stated: “Bulls and bears are still the foundation, but 'TACO' and 'FAFO' are becoming part of the daily language at trading desks.”

FAFO Trading: Absorb Pressure, Wait for Policy Reversal

The FAFO strategy represents another approach: actively absorb short-term shocks while waiting for a recovery in the wake of a policy reversal.

In this model, traders tend to aggressively reduce their positions at the onset of geopolitical shocks or policy escalations, pushing risk assets down and yields higher, and then quickly reposition once market pressures reach a "political threshold."

During the fluctuations related to the war in Iran, the yield on 30-year U.S. Treasuries sharply spiked in the initial phase, reflecting deep market concerns about inflation and fiscal prospects. As tensions eased at times, yields retreated, but have recently surged to new highs again amid a global sell-off of long-term bonds—indicative of the market pricing in the inflationary impact of ongoing geopolitical conflicts.

Investors increasingly view long-term bonds as the "pain threshold" for policymakers: a sharp rise in yields often pressures authorities to soften their stance. However, Akoner also pointed out that in scenarios where sustained geopolitical shocks collide with dual risks of inflation and growth, the market may shift from rapid reversals to deeper and more persistent repricing, at which point the FAFO strategy’s effectiveness would be significantly constrained.

FOMO, NACHO Trading Popularity: Gold Retreats, Oil Takes Over

Throughout 2025, retail investors poured into gold to hedge against uncertainty. Gold prices rose a cumulative 66% last year, marking the biggest annual increase since 1979, driven by expectations of interest rate cuts, geopolitical hotspots, continuous central bank purchases, and inflows into gold ETFs.

However, after gold prices reached nearly 5600 dollars per ounce in January this year, with Trump detaining then-Venezuelan President Nicolás Maduro and the outbreak of the war in Iran, funds began to shift towards oil, causing gold prices to retreat to around 4500 dollars.

Oil has become the new focus. Since January, oil prices have nearly doubled, and the war in Iran has effectively blocked the crucial shipping route of the Strait of Hormuz, with Brent crude futures reaching 126 dollars per barrel on May 1.

This divergence between oil and gold reflects a structural shift in investor behavior—the market is prioritizing energy exposure over traditional safe-haven assets. Piotr Matys, senior forex analyst at In Touch Capital Markets, summarized this new trend into another potential buzzword: "NACHO"—"Not A Chance Hormuz Opens."

It is noteworthy that prior to significant announcements related to the war in Iran, the market saw several targeted bets worth hundreds of millions of dollars on oil prices, which has drawn the attention of regulators.

Cross-Asset Linkages: The Butterfly Effect of Volatility

The overlap of these trading patterns is creating increasingly complex cross-asset linkage pressures.

The so-called "cross-asset whiplash effect" refers to the sharp reversals of cross-market positions driven by rapidly shifting headlines. Commodity markets (especially oil) are often more influenced by supply and demand fundamentals, while the traditional correlations between other asset classes are becoming increasingly unstable.

Akoner noted that safe-haven demand may spike suddenly due to tariff threats or Middle Eastern risks, then quickly dissipate as stock markets stabilize. However, the deeper risk lies in the fact that once high oil prices begin to transmit to inflation, they will push yields even higher. "At that point, you will see broader cross-asset pressures," she said.

Amid the ongoing swings in policy signals and the unpredictable geopolitical landscape, how far this retail "trading handbook" can go remains the market's biggest suspense.