Today we are going to look at the Reserve Risk Metric to help determine macrocycle top/bottoms. This is another great metric provided by Checkmate.
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In this metric – we are in the pursuit of capturing the psychology of market tops and bottoms.
The way we capture this is a metric called Reserve Risk. Reserve risk acts as an oscillator moving from the red zone where smart money (old coins) is realizing profits to the green zone where they accumulating.
To summarize the key areas –>
- Bottom Black line is Reserve Risk (oscillates)
- Green Zone is the accumulation zone
- Red Zone is the sell/spend zone (old coins)
How is this determined?
Reserve Risk (Black Line at the bottom) is the difference between price and the median value of coin-days destroyed (MVOCDD / Red Line). The MVOCDD (red line) is just a fancy name for the spend of old coins.
When HOLDing is dominant – there is less spending – so the MVOCDD will trend downward and away from the price line; the gap widens. This results is a lower reserve risk and we trend down towards/into the GREEN ZONE.
When old coins start to sell, they are realizing profits (SPEND) and the MVOCDD increases towards the price; the gap closes. The reserve risk moves towards/into the RED ZONE.
The Take Home
- The red zone will help you determine cycle tops when smart money is cashing out.
- The green zone is helpful to understand when accumulation and HOLDing is dominant.
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