Risk Weight explained

Every so often we attempt to publish a risk analysis for each of the markets we focus on. This can be a moving target of market. Some will apear and others disappear. We must follow Bitcoin (BTC) as this ‘currency’ is still the leading non-sovereign monetary asset.
If you care to examine your own preferred technical tools they are more likely than not to confirm a similar feel to our % Risk weight number in each of the time frames (time intervals).
Applying technical tools to pre-empt and/or just analyse markets has become a matter of brainmuscle memory. Having seen and experienced certain technical images many times one gets a feel for what a picture is really telling you.
We simplify the risk level by using a single risk weight figure (like 88 or 25) instead of a range (85-90 or 30-20) as this will give a better and more subtle visual how percentage risk weight and potential divergence moves from one analysis date to the next.

  • Trend (Direction) = Up (↑), Down (↓) or N (neutral = undecisive trend at any risk weight level)
  • % Risk Weight* = 90 is high, 10 is low. High risk does not necessarily mean overbought (and vice versa), but more likely to go down if leading trend direction is already Down.
  • Allocation* = X% = Core position should currently not be more than X%
  • * In other words, if you core position is 10% of total asset allocation (the example of 60% allocation means a total asset allocation of 6%)

Gold/USD live price

XAUUSD Chart by TradingView


Comment: A given analysis of course does not provide action guidance in real time. In faster markets with high volatility, the hourly and daily risk weight can play an important short term role for timing an entry or exit.
If the risk signal is very strong (=% risk weight extremely low across key timeframes or period intervals) the risk allocation can be as high as a 100%.
If your chosen max allocation for Gold is 10% of liquid assets, that 10% would represent a maxium 100% position for Gold in your portfolio.

Risk management is not speculation and it is not forecasting based on a black box tool by an industry guru. Fundamental beliefs can play an important role, but they should not finally determine the proper timing for a sale or purchase. For that we always use guidance from technical trading tools using price momentum and other indicators. Only technical tools follow the net market effect of all participants, whether manipulative or not.
Black Swan events happen seldom, and if they do, warning signals will already have been visible from various market indicators for a long time, often with hindsight unfortunately.

One of the big questions every time is: where do I re-allocate funds from high risk bubble assets? This depends on personal circumstances and traditional hard assets like real estate and precious metals, certain other commodities critical to daily needs as well as food agriculture are often considered safe havens. Smaller individual, well researched, stocks could still easily move against the main tide.

One prediction (2018): in coming years we will see several secure asset tokens appear as functional payment facilities in the decentralized blockchain domain. These tokens, and there will be many, shall be traded against each other and a rapidly increasing number of people will own them on their private wallets, invisible to others. Smart action should include early adoption and purchase of some of these tokens whilst moving fiat assets away from the present banking system. These tokens will thus be backed by hard assets that simply continue to be kept in safer existing locations. The strongest tokens will be backed by the strongest assets in a secure environment and tokens will become your better alternative for fiat currency. Mobile application access, transferrable in a split second. A decentralized Internet database environment, like the new Web 3.0 will play an important role in this process.