Normalized volatility as a testable regime switch

Why a second confirmation is added

The archive frames trend identification as incomplete if it rests on a single long moving-average rule. It proposes a second, volatility-based confirmation step because any one indicator can fail.

The confirmation measure is a normalized-volatility-indicator, a scale-free volatility ratio formed from a multi-week average true range divided by the latest close. The construction is chosen so a quarter-length window can be compared across decades after seasonal level effects are reduced.

One cutoff for stay, flip, or add

The decision process is a two-sided regime switch at a single regime-threshold. Above the cutoff, the procedure closes longs and adds shorts daily. Below it, the procedure closes shorts and adds longs daily.

That daily add is a pyramiding-rule: one unit in the same direction while the regime signal remains in force. Abstention sits in the same procedure. Once the threshold is crossed, the prior side is not held.

The accompanying code makes entry, exit, and continued adding one executable sequence. Compare the ratio with the chosen threshold, flatten the opposite book, then trade one unit in the new direction each day while the regime persists.

A searched cutoff, not a unique key

The cutoff itself was selected after a grid search over a narrow band of candidate values on a long index sample. The archive reports one reading as one of several optima rather than a unique solution.

The same procedure is presented as having given earlier warning before a cyclical decline, a closer alignment with a later advance, and a timely mark of a later downturn on a long-span index chart.

Chart annotations at the start of that downturn show the index beside a volatility ratio that sat above both a shorter average and a longer average, illustrating a bear-regime reading as that cycle began.

What the robustness check is for

Published test statistics at the chosen cutoff include recovery-factor, win rate, profit factor, and payoff ratio. The text treats those figures as evidence the rule can endure long drawdowns rather than as a high hit rate.

Recovery-factor is used here as a robustness check rather than a forecast of future returns.

Editorial: those checks describe the historical workflow. They do not establish present-day performance, and they do not convert the procedure into standing advice.