It is important that you should understand how the Risk Dial works because only when you understand it you will be able to make good use of it.

The algorithms behind the daily score measure literally thousands of inter and intra market spread relationships. Every relationship is scored in order of importance. Then its price position is measured against many moving averages and the slope of the moving average is graded too.

Here is a live example. One (out of thousands) of risk relationships is SPY/IEF.  I have marked with red arrows the inflection points at which the score of that relationship turned up significantly and with white arrows the points at which it turned down and deteriorated significantly.

At the points marked with the red arrows the ratio spread price is above the moving averages and the slope of the moving averages starts to turn up and accelerate. There are marks for everything: position, slope, acceleration. Conversely, at the points marked with the white arrows, the opposite is happening, showing indecision or trend change.

If you now overlay the points marked by the arrows with the price of SPY, you will fully see how just that one spread relationship matches the future performance of the index:

Now, if just one spread relationship can signal important shifts in money allocation and market liquidity conditions, imagine what 1,000s of them, properly graded, can do over an extended period of time. They will give you timely information to enable you to increase or reduce risk in your portfolio.

What you cannot do is use the Risk Dial as a daily tool. It will just not respond to small daily changes in the price of equities. But it WILL give you the direction of the main trend, enabling you to take appropriate action at the appropriate time. The equity market could rally at the time of writing by 2-3-4% and only a minute change in the overall score of the Risk Dial would be measured, simply because no important spread levels were breached. When that happens, you will know that the main trend, at the moment DOWN, is about to reassert itself, with a vengeance.  It is quite simply the most powerful tool I have come across in 35 years of trading and investing.  I have total confidence in its ability to outperform any market benchmark over the long term.

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