Categorizing Market Regimes with ATR

atr bull markets fx indicators market regime Feb 15, 2021

The trading team in the "Lab" have been doing a lot of work on different ways to categorize market regimes, and the many different characteristics of each regime. 

Of course if you've been seeing my emails and following our work at Pollinate you know that we put a lot of importance in the value of categorizing market regimes and using the SQN indicator to help us do that. 

Another even easier method to categorize the regime is to use the ATR indicator. 

ATR = Average True Range basically smooths out a moving average of the length, which out of the box is 14 bars. 

So the way we use it is if the ATR is declining then the volatility is declining.

If the ATR is rising, then the volatility is increasing. 

Pretty simple!

Let me show you what I mean on the Nasdaq Futures daily chart

This is one we've been talking about for a couple of months. 

You'll notice that the SQN indicator signals a sideway/neutral regime all while the price has been rising higher and higher. In order for me to trade this thing I had to use my price action knowledge about the characteristics of a bull quiet market regime to keep buying this up. 

Basically a major tell of a bull quiet is that the best sell setups fail over and over again. Which as you can see has happened almost on a weekly basis, over and over. 

But if we look at the ATR we see the smooth declining ATR trend down, that tells us that we were in a quiet regime. And the price of the index was trending higher...voila Bull Quiet!

Let's have a look at today's Failed Breakout on USDCAD

The trend in price is down or Bearish.

The SQN is telling us we are in a neutral or low volatility regime.

And the ATR is saying that this low volatility drift lower is ruling this pair. 

So we can call this a neutral/bearish low volatility regime. 

By far the best pair and best regime to trade is the USDCAD Failed Breakouts AND/OR Failed Vol Breakouts (FVBO). This is an 85% Win Rate setup with an SQN above 6. If you don't understand what that means, it means that we can bet bigger position sizing as we know statistically this is very good!

This is the sort of work that we would've been doing in the Trading Thunderdome. But as I got a lot of feedback from traders, they either weren't able to make the time commitment to joining the Thunderdome or simply weren't ready for the Thunderdome. 

I realized that there was a large gap between getting started in Systems Trading and the Thunderdome. 

What we need is a community of traders, sharing ideas, and insights in real time about markets, about trade setups, about their own research and strategies. A place where we can collaborate with other like minded traders who aren't chasing headlines and simple trade signals. 

So without further delay I introduce to you the Pollinate Trading Lab

The Lab is a private Slack Channel for traders who want to get to the next level and not just get told what to trade.

This is a monthly subscription so you can cancel at any time.

Included in the subscription:

  • Live 24/7/365 Slack channel to talk about markets (FX, Futures, Options, Equities, Crypto, Bonds), optimal performance, theory, sharing research, ideation of new strategies. 
  • All the backtests and research that we are working collectively as a team
  • Direct access to us, ask questions live, see what trades we are looking at, offer your insights to help other traders!
  • Discounts on all products and early access to any new products and courses we release 

Trading is a lonely business, so it is easy to end up following internet marketers that are great at selling signal services, but don't teach you how to really succeed on your own.

Our priority here is to help you become successful traders with your own strategies or improving upon ours.

Here's the link again, I can't wait to work with you {{first_name}}!

Trading Lab

PS be sure to click on the link to join the Slack channel in the Thank You page or the Email confirmation. That's how you get access to the Slack group!

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