A Weighted Market Risk Score: Taking the Pulse of the Current Bull Run - Part 3

The Market is continuing on it's upward trajectory and we're starting to see "should I still buy", "should I lump sum or DCA" posts almost daily.

In general, it seems like people can't put a finger on where we seem to be in this cycle. So I'll try to do this for you using some of my private and public indicators - Part 3! I'll create these as long as you guys enjoy them!

This time, we're taking a new approach by calculating a weighted risk score based on several reputable models and indicators. Keeping in mind that:

All models are wrong, but some are useful. - George Box

To gauge the overall market risk, we'll be using the following indicators, each with differing weights:

Alphasquared (link) - 40%

• This one is my most trusted metric and what I've used for the past year to DCA with.
  It pinpointed the Bear Market perfectly. With the best track record, we weigh this at 40%.
• The current Risk is: 61.95 out of 100.

https://preview.redd.it/8t0szhsb5qrc1.png?1255&format=png&auto=webp&s=c03e4c252c02b688d227e90d28284877ac97c358

Benjamin Cowen (YouTube) - 30%

• This one missed the 2022 bottom by a fair bit, but many people use it and I have so too in the past. There's a certain reputation around this indicator so I'll include it, albeit at a lesser weight.
• The current Risk is: 0.704 out of 1.

https://preview.redd.it/zikr4q8d5qrc1.jpg?1326&format=pjpg&auto=webp&s=5a363104d5404078c9c9d5ae9042d4f8c1b6e864

Bitstack Risk (link) - 10%

• This is an open source one that calculates risk via fair value and while it has no track record yet, we can include it with a 10% weight.
• The current Risk is: 0.72 out of 1.

https://preview.redd.it/7eoj6idi5qrc1.png?2539&format=png&auto=webp&s=6a36e32ceb89bd607fe7282cbaaf18140094af3d

CBBI (link) - 10%

• This one missed both the top in 2021 and the bottom in 2022, but not by a huge margin.
  It has since been refitted without mention, but we'll still include it with 10% weight.
• The current Risk is: 80 out of 100.

https://preview.redd.it/tkf27hkq5qrc1.png?1100&format=png&auto=webp&s=70b0d0376a70282c3e52f25248ba24811749bbcf

RSI (link) - 10%

• We all know the RSI. It's a trusty indicator, albeit a simple one. This is a weekly timeframe.
• The current Risk is: 84 out of 100.

https://preview.redd.it/o7x9vr0j6qrc1.png?2069&format=png&auto=webp&s=4df90a833926cf0cee9e543455656399ae6b2797

Now, let's combine all of these

Verdict

In conclusion, by combining insights from multiple models and indicators, we've calculated an overall weighted risk score of 69.5 out of 100 for the current BTC market conditions. While no single metric tells the whole story, this can help us put things into perspective so we can judge when to take profits, keep DCAing etc.

Just for good measure, models are tools, not crystal balls. The best you can do is build your Strategy around them, like setting buy and sell points scaling up and down with risk.

With this in mind, I hope this post is appreciated. Let me know if you want a part 4! I'll keep updating you guys as long as these are well-received.