The Market has been in a downtrend for most of April, giving us a much needed breather after half a year of relentless upside movement.
Part 3 of this series was much appreciated (here's your update, u/october45!), so I'll go ahead and check out different sources of Market Risk and put them together for you to get a clear picture of where we're at.
Edit: Since somebody asked, here's a small refresher on Risk: These indicators try to gauge the state of the market and how overbought or oversold it is. From a very simple RSI, all the way to more elaborate metrics, you can use the value, usually 0-1 or 0-100 to gauge how risky it is to buy or sell respectively.
Always keep in mind:
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 of all, we weigh this at 40%. - The current Risk is: 46.40 out of 100
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: 0.581 out of 1.
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: 0.63 out of 1.
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: 68 out of 100.
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: 55 out of 100.
Now, let's combine all of these:
| Indicator(%) | Current Risk in % | Weight |
|---|---|---|
| Alphasquared | 46.4 | 40 % |
| Benjamin Cowen | 58.1 | 30 % |
| Bitstack | 63 | 10 % |
| CBBI | 68 | 10 % |
| RSI | 55 | 10 % |
| TOTAL | 54.6 | 100 % |
Verdict
In conclusion, by combining insights from multiple models and indicators, we've calculated an overall weighted risk score of 54.6 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 5!
I'll keep updating you guys as long as these are well-received.
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