Assessing Average Market Risk: Weighing in on the Crash

The Market is seeing a strong correction with Bitcoin down over 25% over the past week. Looking at my portfolio hurts and it’s clear this sub is in distress.

What usually helps is putting price into perspective using long-term risk models. I’ve posted this compilation of my private and public indicators before and people have always enjoyed them. So here’s another one and I hope it helps keep the uncertainty at bay.

We’ll be 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%

https://preview.redd.it/thkvklk1ytgd1.png?width=1298&format=png&auto=webp&s=2026cf7e34c86c3486ad3f153229e991c9f9b9d0

• 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: 22.30 out of 100.

Benjamin Cowen (YouTube) – 30%

https://preview.redd.it/wkc3f15xxtgd1.png?width=415&format=png&auto=webp&s=a271633102bb9b4ccc0222cd000fbc0a394bfb24

• 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: 0.277 out of 1.

RSI (link) – 20%

https://preview.redd.it/tlmd8w06ytgd1.png?width=2069&format=png&auto=webp&s=2fb8b4d6cf08ccbdac815f18e80df7eae82f8f82

• We all know the RSI. It’s a trusty indicator, albeit a simple one. This is a weekly timeframe.
• The current Risk is: 41.8 out of 100.

CBBI (link) – 10%

https://preview.redd.it/ijad3579ytgd1.png?width=1071&format=png&auto=webp&s=2fccface7d72928c639dfee00dcfbec42456e977

• 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: 61 out of 100, which I think looks quite high.

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 31.69 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. I’ll keep updating you guys as long as these are well-received. I’m more at ease looking at these indicators and simply increasing my DCA this week.