---
title: "Risk condition"
description: "A risk condition is a rule that watches a market series and, when it triggers, switches a strategy from its Risk-On allocation to its Risk-Off allocation."
canonical_url: "https://fincanva.com/glossary/risk-condition"
last_updated: "2026-10-06"
md_url: "https://fincanva.com/glossary/risk-condition.md"
---

# Risk condition

A risk condition is a rule that watches a market series and, when it triggers, switches a [strategy](/glossary/strategy) from its Risk-On allocation to its **Risk-Off** allocation — the defensive profile you defined. When the condition clears, the strategy switches back. It never pauses or stops the strategy. A strategy carries up to two, built in its **Risk** card.

$$
\text{Risk-Off is requested when}\quad {s_t} \;{\square}\; {\theta}
$$

where:

- the value of the chosen indicator on the watched series, on the day being checked
- the Operator you pick: is above, or is below
- the number you type for Risk-Off — or, on a Double series condition, the second series' value

In words: the rule asks for Risk-Off on a day its indicator sits on the chosen side of the threshold or second series. A **Single series** condition runs the test again, with its own threshold, to return to Risk-On; a quantitative rule uses its own test, stated on its page.

## How does Fincanva handle it?

A risk condition's sheet writes the rule as sentences: go Risk-Off when the value of the S&P 500 is below its 200-day moving average; when the rule flips, switch immediately, without rebalancing.

- The **Risk** card is described as "Automatically de-risk when markets turn", and each condition's sheet as "Configure a market condition that flips this strategy to its Risk-Off allocation." With no condition it reads "Without a condition, the strategy stays in Risk-On at all times."
- At most two conditions, joined by "Or" on the card and in [Step by step](/glossary/step-by-step): either one is enough — see [two-condition combination](/glossary/two-condition-combination). Removing the first moves the second into its place.
- Each condition carries its own [confirmation delay](/glossary/confirmation-delay), 0 to 12 weeks ("0 = act immediately."), and its own [auto-rebalance](/glossary/auto-rebalance-on-flip) toggle ("Trigger a rebalance when the condition flips."), so one can act at once while the other waits.
- A Risk-Off profile identical to Risk-On makes a trigger change nothing; the app flags it before you [backtest](/glossary/backtest) ([Risk-Off canonicalization](/glossary/risk-off-canonicalization)).
- The app sends no notification on a trigger: [you find out by opening the strategy](/glossary/risk-on-and-risk-off#how-do-you-find-out-your-strategy-has-gone-risk-off).
- Fincanva does not say when to go defensive, which series to watch, or what threshold to set. See [Is this financial advice?](/docs/investing-theory/is-this-financial-advice#is-this-financial-advice).

## What does it look like in practice?

You want a strategy to turn defensive while a broad equity index trades below its long-term trend. You pick "Double series" under **Custom**, set **Series 1** to SPY with the **Indicator** at "Raw price", and set the **Comparison series** to SPY with "Simple moving average" and a **Period** of 200. The **Operator** reads "is below", and **Confirmation delay (weeks)** is 2, so a two-day dip below the average is not enough.

While SPY sits below its 200-day average for at least two weeks, the strategy runs its Risk-Off allocation; once SPY is back above it, Risk-On again. The strategy never stops: it keeps [rebalancing](/glossary/rebalance), and the only holdings that change are those the two profiles differ on — a lower [invested portion](/glossary/invested-portion) in Risk-Off shows up as a larger cash reserve. What changes between the profiles is on [Risk-On and Risk-Off](/glossary/risk-on-and-risk-off).

## What is a single risk condition made of?

A risk condition is one watched series, one comparison and two behaviour settings — enough to read as one sentence: *when SPY is below its 200-day simple moving average for two weeks, switch to Risk-Off.* The sheet, headed "New risk condition", writes every rule out as a sentence like that one.

| Part | The field that sets it | In the example |
|---|---|---|
| Watched series | **Instrument** | SPY |
| Transformation | **Indicator**, over a **Period** where it reads a window | "Raw price" |
| Reference | thresholds you type, or a second series — the **Signal** you choose decides | SPY with "Simple moving average", **Period** 200 |
| Comparison | **Operator** — "is above" or "is below" | is below |
| Patience | **Confirmation delay (weeks)** | 2 |
| Timing | **Auto-rebalance** | off |

The **Indicator** choices are "Raw price" ([raw price](/glossary/raw-price)), "Simple moving average" ([SMA](/glossary/simple-moving-average-sma)), "Percent change" ([percent change](/glossary/percent-change)) and "Average momentum" ([average momentum](/glossary/average-momentum)). That is the **Double series** shape, measured against another series; **Single series** measures against two numbers. The three **Quantitative regimes** rules — [Hidden regimes (Markov)](/glossary/hidden-regimes-markov), [Clustering](/glossary/clustering) and, on a [Combined](/glossary/combined) only, [Strategy's own performance](/glossary/strategy-s-own-performance), which watches the Combined's own value — replace the indicator and comparison with a model's settings; [condition types](/glossary/condition-types) covers all five. Both behaviour settings exist to damp [whipsaw](/glossary/whipsaw); you can also start from a ready-made [risk template](/glossary/risk-templates).

## How do the Risk-Off and Risk-On thresholds work?

A **Single series** 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. Two separate numbers give the condition a distinct entry and exit point: set Risk-Off at 25 and Risk-On at 20 on a [volatility](/glossary/volatility) reading, and the strategy returns to Risk-On only once the reading has fallen a clear distance below the level that made it defensive. That gap stops a reading hovering around one value from flipping the allocation back and forth — the [whipsaw](/glossary/whipsaw) the two thresholds damp. A **Double series** condition has no numeric thresholds: the comparison between the two series is the whole condition.

The two thresholds must not overlap. In Risk-On only the Risk-Off threshold is checked, in Risk-Off only the Risk-On one, each as a strict comparison — so a value that meets both switches the regime at every observation. Set Risk-Off to "is above 30" and Risk-On to "is below 40", and every reading between 30 and 40 flips the strategy; with both on "is above", every reading above the higher one does. The Risk card flags it as the [strategy alert](/glossary/strategy-alerts) "The portfolio would keep flipping between Risk-On and Risk-Off", and the Risk-On threshold's help reads "The comparison that brings it back to Risk-On. Between the two thresholds the regime stays where it is, so it does not switch back and forth."

## What does Risk-Off change on a single instrument?

On a strategy holding one picked [instrument](/glossary/instrument) and no entry [screener](/glossary/screener), Risk-Off can change only how much of the capital is invested — the profile's [leverage](/glossary/leverage) — because an [allocation method](/glossary/allocation-and-allocation-method) has nothing to weigh with one instrument. Leverage 0 in Risk-Off means all in cash, 0.5 means half invested. The Risk card says so with the grey note "With one instrument, risk only changes how much you invest": "Risk-Off decides how much to invest in the instrument: leverage 0 means cash, 0.5 means half."

If both profiles carry the same leverage, the switch has nothing left to change and the engine removes the rule. The Risk card then shows the [strategy alert](/glossary/strategy-alerts) "Nothing changes when the risk triggers": "With one instrument the method does not matter and Risk-Off can only change the leverage; with the same leverage the engine removes the rule, so set a different leverage (0 = all in cash)." A few method settings keep the method running on one instrument — [Beta neutral](/glossary/beta-neutral) among them — and the alert stays silent for those.

Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)