Regime Detection: Adapt Your Strategy
Markets shift between trending, ranging, and volatile states. Your strategy must adapt.
Not all market conditions are the same. A momentum strategy that works beautifully in a trending market will get chopped to pieces in a range. A mean-reversion strategy that profits in ranges will get run over by trends. The solution: detect the current regime and adapt.
Buildix uses a volatility ratio approach to classify markets into three regimes: Trending (directional, follow momentum), Ranging (sideways, fade extremes), and Volatile (chaotic, reduce size or stay out).
The classification is based on comparing short-term vs long-term volatility, the ratio of directional movement to total movement, and the autocorrelation of returns. When short-term volatility aligns with direction, the market is trending. When it's random, the market is ranging. When it spikes without direction, the market is volatile.
The practical implication: in Trending regime, follow CVD direction and momentum signals. In Ranging regime, fade OBI extremes (buy when OBI is very negative, sell when very positive). In Volatile regime, reduce position sizes and widen stops.