A persistent state of the financial markets characterized by distinct patterns in trend, volatility, and macroeconomic conditions.
Helps investors understand how the market is behaving (e.g., quiet, choppy, or highly reactive) so they can adapt their strategies accordingly.
Regimes are typically classified by combining direction and volatility.
6 Primary Regimes:
- Bull Normal: Rising prices, low volatility, steady trend (ideal for trend-following strategies).
- Bull Volatile: Rising prices but wide, erratic swings (requires wider stop-losses).
- Bear Normal: Falling prices, lower-to-moderate volatility, steady downtrend.
- Bear Volatile: Sharp, rapid sell-offs, extreme volatility (often accompanied by high VIX).
- Sideways Quiet: Choppy, range-bound movement with low volatility (best for mean-reversion or swing trading).
- Sideways Volatile: Flat overall trend but large, erratic up and down swings (difficult for most trend-following systems).