Market Risk Indicator

2022年2月17日

There are many tools for swing traders. Position traders have not as much, perhaps because they live in the fringe zone between fundamental analysis and trend following.

In order to bridge this gap between fundamental analysis and technical analysis on large timeframes, we decided to work on building a market indicator that assesses its risk and quantifies it on a single dimension number.

The challenge is to consider as input different assets, that individually are themselves often market driving forces, and collectively, more often than not, are sufficient to determine the market status quo.

We came up with DXY , US10Y , HYG and WTI. The latter, the bigger the better; the former, vice versa.

Each asset is evaluated against its recent max/min range, percentually. The positive ones add up and vice versa.

This is still ongoing work. the math and code are simple. the heart of the matter is selecting the proper assets and processing them even better.

Thank you.

2022年2月18日

版本注释

There are many tools for swing traders. Position traders have not as much, perhaps because they live in the fringe zone between fundamental analysis and trend following.
In order to bridge this gap between fundamental analysis and technical analysis on large timeframes, we decided to work on building a market indicator that assesses its risk and quantifies it on a single dimension number.
The challenge is to consider as input different assets, that individually are themselves often market driving forces, and collectively, more often than not, are sufficient to determine the market status quo.

We came up with DXY, US10Y, HYG and WTI. The latter, the bigger the better; the former, vice versa.
Each asset is evaluated against its recent max/min range, percentually. The positive ones add up and vice versa.
This is still ongoing work. the math and code are simple. the heart of the matter is selecting the proper assets and processing them even better.

We have updated the background, depicting its components in a color map. It goes as follows.

The background bars are as follows, from top to bottom; wti, hyg, us10y, dxy.
As expected the red color means bad; yellow, neutral; green, good.
The upper two (wti, hyg), are green when in the highest; the bottom two (us10y, dxy), the contrary.

Some interpretations, feel free to have your own.

Growth is signaled by (from top to bottom) red, green, green, red; i.e, low oil, high hyg, low us10y, strong usd.
Recession is red, red, red, green; i.e, low oil, low hyg, high us10y, weak usd.
Inflation is green, green; i.e, high oil, high hyg. the remainder are colored accordingly to how the fed is reacting.
Stagflation is green, red; i.e, high oil, low hyg. the remainder are as stated above.

Yes, it is too simplistic, hopefully enough for a quick look.

Thank you.

2022年2月19日

版本注释

added labels on the right side of the bottom chart to identify each indicator component in each row.

2022年2月27日

版本注释

We've added a new curve (in white) that represents a gauge for BTC price move strength. This is based on the premise that higher volume drives prices further (up or down). Thus, this additional curve considers

• marketcap variation of main stablecoins,
  
• recent volume changes (whether volume is rising or falling), and
  
• relative position of current volume according to extremes (min, max) of a given horizon (last 200 candles).
  

We've removed WMA curve of market risk indicator (which remain unchanged) in order not to visually polute the chart.
An interesting interpretation is when you have

• market risk indicator (blue line) nearing extremes,
  
• BTC volume based potential strength (white line) at the top, and
  
• prices not yet moving.
  

That suggests an intensive move in the near future.
Best!

2023年4月10日

版本注释

dear fellows,

in this update we introduce 2 news plots
1. rate of change of GDP (in white)
2. rate of change of CPI (in orange)
both measured quarter over quarter.

as we're not interested specifically in the amplitude of the rate of change, we cap them between [-100, 100], to cope with the existing y axis scale.

as it is a quarter over quarter measure, it only makes sense in 3M chart timeperiod. in any other timeperiod, these plots do not make any sense whatsoever.
thus, we invite the users to disable them in case their current timeframe is not quarterly, or vice versa. we are sorry for this inconvenience.

it thus offer good insights, though.
the interpretation is as follows.
1. both plots positive, reflation
2. white negative, orange positive, stagflation
3, both negative, deflation
4. white positive, orange negative, goldilocks.

we plan to expand this session in more and better clarification.
this work is not original. it is based in existing publicly available knowledge on macro economic categorization.

best regards.