RiskMaster - Control Your Risk Like A Pro
This model is available to all subscribers, including those on the free tier. Supplementary trading strategy is available for paid subscribers
RiskMaster is our proprietary market timing model for the purposes of long-term investing.
This model is the result of many years of research in systemic risk, conducted by the creator of TradeMachine and one of the author's highest professional achievements.
It is a multi-factor model that allows for the categorization and objective assessment of stress levels in the financial system and the potential risk of sharp deleveraging, which often accompanies or causes sharp stock market selloffs.
Some factors used internally by this model to decide whether to generate a risk-off warning include:
Cross-asset volatility
Credit stress
Market breadth
Our work has shown that it is possible to identify factors indicating an increasing level of stress and that periods of this heightened stress correlate significantly with periods of negative or flat returns of stock market indices such as the S&P 500.
RiskMaster has properly captured the risk ahead of the 2007 Great Financial Crisis. It also warned us ahead of the early 2019 market turmoil and saved us about half of the downturn during the 2020 Covid market crash. It also generated an early warning ahead of the 2022 market selloff and helped us to stay out of the long side of the stock market until November 2022, when it switched back to a risk-on stance, allowing us to buy some dips ahead of the crowds still focused on recession and Fed Quantitative Tightening fears.
The model does not rely on technical analysis in any of its parts, nor does it consider the price action of the indices themselves. Backtests and forward tests have shown that the model's indications often act as a leading indicator, not lagging like the commonly used technical models.
The model intentionally has a certain inertia, which allows it to avoid generating false warning signals during temporary market turbulences. To generate a warning signal, there is a need for a constant, strong, and increasing indication of risk factors. This approach helps model users stay in their long positions as long as possible to maximize profits.
The model is suitable for timing long-term investments, and the best results are achieved using it in long-only applications. Risk-off warning signals should be treated not as a signal to take short positions, but to take profits or exit the market.
As part of the introductory promotion, free-tier subscribers receive access to indications and updates of the model stance (risk-on/risk-off).
Paid subscribers additionally receive access to a complete trading strategy based on this model, including email notifications when the model takes or closes positions.