Risk conditions

How risk conditions switch a strategy between Risk-On and Risk-Off

A strategy always holds one of two allocations, and its risk conditions decide which one. Risk-On is the default — your normal allocation, the strategy exactly as you built it. A triggered risk condition moves it to Risk-Off, the defensive allocation you defined; when the condition clears, it moves back. There is no third state and no gap between the two: with nothing configured, the Risk card states the baseline plainly — "Without a condition, the strategy stays in Risk-On at all times."

The switch is an allocation change and nothing else. The app's risk step puts it in exactly those terms — "Define risk conditions that switch the strategy to its Risk-Off allocation when triggered." — and you build the conditions in the Risk card, described as "Automatically de-risk when markets turn". A strategy running Risk-Off is not paused, halted or liquidated; it holds whatever its Risk-Off allocation holds.

What a single risk condition is made of

A risk condition is one watched series, one comparison, and two behavior settings — enough to read as a single sentence: when SPY is less than its 200-period simple moving average for two weeks, switch to Risk-Off. Each part of that sentence is a field in the builder, headed "New risk condition".

That example is a Double series condition: what the signal is measured against is another series rather than a number. The other shape, Single series, measures one transformed series against two thresholds you type — condition types covers what each shape shows. The Indicator choices are the same either way: "Raw price" (raw price), "Simple moving average" (SMA), "Percent change" (percent change) and "Average momentum" (average momentum). Rather than build from scratch, you can start from a ready-made risk template and adjust it.

How the Risk-Off and Risk-On thresholds work

A Single series risk condition has two thresholds, set independently: a Risk-Off one that switches the strategy into Risk-Off, and a Risk-On one that switches it back. Because they are two separate numbers rather than one line, the condition gets a distinct entry point and a distinct exit point: set the Risk-Off threshold at 25 and the Risk-On threshold at 20 on a volatility reading, and the strategy only returns to Risk-On once the reading has fallen a clear distance below the level that made it defensive. That gap is what stops a reading hovering around one value from flipping the allocation back and forth — the whipsaw the two thresholds exist to damp. A Double series condition has no numeric thresholds at all: the comparison between the two series is the whole condition.

What Risk-Off does to your allocation

Switching to Risk-Off swaps in the Risk-Off allocation profile — a complete allocation with its own weighting method and its own invested portion, typically more defensive than the Risk-On one. The two sit side by side in the Allocation card: Risk-On is the allocation the strategy uses while no condition is firing, and Risk-Off the one it swaps to while a condition is. Because the Risk-Off profile can put less capital to work, going defensive shows up as a larger cash reserve, not as a stopped strategy — see Risk-On and Risk-Off for what changes between the two. Until you configure the defensive side, the app shows "Risk-Off allocation needs to be set". Fincanva does not tell you how defensive to be, or when — see Is this financial advice?.

What the confirmation delay and auto-rebalance do

Two per-condition settings decide when a flip is acted on and whether it forces a rebalance. Confirmation delay (weeks) makes the condition wait before the strategy acts — a whole number from 0 to 12, with the hint "0 = act immediately." — so a move that reverses inside the window never changes the allocation; the trade-off it buys is covered in confirmation delay. Auto-rebalance ("Trigger a rebalance when the condition flips.") decides whether the switch triggers a rebalance the moment it happens or waits for the next scheduled one — see auto-rebalance on flip. How the two pace against the strategy's own clock is covered in How Risk-Off affects when your strategy rebalances.

Limits and edge cases

• At most two risk conditions. A strategy holds a first and a second condition, and there is no third slot. Removing the first promotes the second into its place.
• The app combines two conditions with Or. Either one triggering is enough to switch the strategy to Risk-Off; they never both have to fire, so a second condition makes a strategy go defensive more often, not less. The label above the list tracks this — "Always Risk-On" with none configured, "Match → Risk-Off" with one, "Any match → Risk-Off" with two. See two-condition combination.
• An identical Risk-Off allocation is a no-op. If the Risk-Off allocation is configured the same as Risk-On, triggering changes nothing. The app flags it before launch with "Risk-Off allocation is the same as Risk-On." and badges the profile "Matches Risk-On".
• The behavior settings are per condition. Each condition carries its own confirmation delay and its own auto-rebalance setting, so one can act immediately while the other waits out its window.

Related

• Set up a risk condition — build or edit one, step by step.
• Risk-On and Risk-Off — the two allocation profiles a condition switches between.
• Condition types · Confirmation delay · Auto-rebalance on flip — the pieces one condition is built from.
• When risk management changes your strategy's behavior — the trade-off you take on by adding one.
• How often your strategy rebalances — the clock every flip is paced against.