Financial Conditions Traffic Light Indicator

Inspired by TomasonMarkets. Today I am publishing my first Indicator on trading view based 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).

Strategy 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.