Usage

Volatility Regime Model Usage

Trading in different volatility states requires adapting your bias dynamically. Follow these steps to properly identify regimes and execute trades safely during high-stress market conditions:

1. Classification of Regimes: Rather than viewing the VIX as a continuous oscillator, it is broken into distinct zones:

   • Low Vol (VIX < 22): A stable carry regime characterized by high persistence. Levels near 15 represent an extremely quiet market.
   • Mid Vol (VIX 22–32): A transition or "fragility" zone. Often short-lived.
   • High Vol (VIX 32–38.3): A stress regime indicating significant market uncertainty.
   • Crisis Cluster (VIX > 38.3): Statistically, severe structural market stress begins around this level.
2. The Persistence Decay: Volatility is mean-reverting early and becomes persistent if the shock survives.

   • Days 1–2: High probability of a downshift (Fade Noise).
   • Days 3–5: Edge for a quick "vol crush" begins to decay.
   • Day 6+: Persistence begins to dominate. Risk of a regime shift is high (Defensive).
3. The Validation Layer: Determining if a spike is a "glitch" or a systemic shift via cross-asset confirmation. If signals do not confirm, fade the move. If they confirm, respect the new trend.