Financial Conditions Traffic Light Strategy (MCSATS)

This is a strategy based on the on Chicago Fed National Financial Conditions Index (NFCI). The NFCI incorporates 105 financial market indicators, helping gauge whether financial conditions are "tightening" (restrictive) or "loosening" (accommodative).

It is nothing too complex:

Negative RoC of NFCI = loosening conditions = more liquidity = Risk-on

Positive ROC of NFCI = tightening conditions = less liquidity = Risk-off

Additionally:

Using the 28-week Exponential Moving Average (EMA) we identify long-term trends:

NFCI above the EMA: Indicates financial conditions are tight (relative to recent trends).

NFCI below the EMA: Indicates financial conditions are loose. (relative to recent trends).

Indicator logic:

🟢 Risk-on trades (bullish Bitcoin and other high beta assets) when the NFCI has a negative slope AND NFCI is below its 28-week EMA.

🔴 Risk-off trades (bearish Bitcoin and other high beta assets) when the NFCI has a negative slope AND NFCI is above its 28-week EMA.

🟡 Neutral: Happens in two scenarios: NFCI has a negative slope but is above its EMA OR NFCI has a positive slope but is below its EMA.


Strategy logic:

This is a long only strategy. Risk on triggers a buy signal and risk off triggers a sell signal. Since I found that the you are better off holding into bitcoin at neutral states rather than selling neutral just stays as holding.