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RISKMANAGEMENT

Regime Filters & Exits

Hex Omega — June 2026

TABLE OF CONTENTS
I. What Is a Regime Filter and Why Does It Matter?

II. Price Distribution Regime

III. Trend Regime (EMA Alignment, Slope, HH/LL)

IV. ADX Regime Filter (Trend Strength)

a. Raw ADX

b. Percentile ADX

V. Slope Distribution Regime

VI. DI Spread Regime (Directional Index)

VII. Higher Timeframe (HTF) Alignment Regime

VIII. How Active Regimes Drive Exits

a. Stop-Loss Multipliers

b. Take-Profit Multipliers

IX. Strategy-Specific Behaviour

X. The Combined Conviction Score

XI. Worked Examples

XII. Parameters
I. What Is a Regime Filter and Why Does It Matter?
You already know about regimes I do not have to explain them. But you should be using a
regime filter on your exits & entries.

This regime filter system is a risk management tool that reads the environment before anything
else happens. Before a trade is entered or exited, before a stop-loss or take-profit level is
calculated, the regime system runs first. This is the opposite of curve-fitting or over-fitting, this is
robust risk management.

REGIME FILTERS ARE ALGO-SPECIFIC

Not every algorithm uses all available regime filters. Which filters you apply depends entirely on
the methodology of the strategy. Applying the wrong filter for the wrong strategy type adds noise
rather than signal – a regime filter only has value if it is relevant to how the algo generates its
edge.

A mean-reversion strategy built on statistical deviation – such as the MeanReversion algo –

primarily uses the Price Distribution Regime. The core logic is whether price has moved far
enough from its statistical centre to warrant a counter-trend entry. ADX is used as a
secondary confirmer to avoid fading a genuine sustained trend.

A trend-following or breakout strategy – such as the Donchian Channel algo – combines

Price Distribution with ADX to confirm both that price has escaped its recent range and
that a real trend engine is driving the move.

More comprehensive multi-regime implementations add DI Spread (who is currently

winning between buyers and sellers) and Higher Timeframe Alignment (do the bigger
timeframes agree with the entry). These are optional layers that increase signal quality at
the cost of additional complexity.

Each active filter produces a multiplier. Multipliers above 1.0 mean the environment is
favourable for the trade. Multipliers below 1.0 mean conditions are hostile. These multipliers are
blended into two final outputs: how wide the stop-loss should be, and how far the take-profit
should reach.

WHY NOT JUST USE FIXED RULES?

Fixed rules assume the market always behaves the same way. Set a stop at 2% below entry, target
6% above, use the same position size every time. This sounds simple, but it is catastrophically
wrong in practice. The same is true for take-profits. In a strong trend, closing at 6% means you
left a 30% move on the table. In a choppy range-bound market, the 6% target never gets hit and
the trade reverses at 3%. The regime filter system solves this by making every parameter
dynamic and environment-aware.

THE RESULT IN PRACTICE

When the active regime filters are aligned and favourable, the engine widens stops to give trades
room to breathe and extends take-profits to capture more of the move. When the filters are mixed
or hostile, stops tighten and targets come in closer. When conditions are truly bad, the system
effectively says "do not trade here" by setting multipliers so low the trade cannot justify entry.

This is not a rigid rule system. It is an adaptive engine.

A NOTE ON RAW PERCENTILES VS Z-SCORES

All regime filters in this system use raw percentile values rather than z-scores. A raw
percentile directly answers: "what fraction of historical readings fell below this value?" A
75th percentile ADX means 75% of past ADX readings were lower. This is immediately
interpretable, stable across instruments and timeframes, and requires no distributional
assumptions.

Z-scores express a value as the number of standard deviations from a rolling mean. While
statistically elegant, they assume the underlying distribution is roughly normal – which market
data frequently is not. They also respond poorly to outliers: a single extreme reading shifts the
mean and inflates the standard deviation, suppressing z-scores for subsequent genuine extremes.
Raw percentiles are more robust, more interpretable, and more consistent across real market
conditions. They are the preferred approach throughout this system.

II. Price Distribution Regime

Where Is Price Sitting Inside Its Own History?

THE CORE IDEA

Imagine you printed every daily closing price for a given market over the last two years onto a
long piece of paper. Then you folded that paper into a bell curve, a histogram. You would find
that most prices cluster in the middle – where the market spends the majority of its time. Then
the curve thins out toward the edges. Prices at the far left are the crashes, the panics, the extreme
sell-offs. Prices at the far right are the euphoric tops, the blow-off rallies. These extremes are
rare.
The Price Distribution Regime system does exactly this automatically, in real time. It takes the
rolling history of prices for the current pair and asks: where does today's price sit on that
histogram? Is it in the crowded middle, or is it out in the thin tails?

The answer is expressed as a percentile. A price at the 5th percentile means that 95% of all
historical prices for this pair were higher than today's price. It is an extremely low, extended
reading. A price at the 95th percentile means 95% of all historical closes were lower than
today – it is an extremely elevated, extended reading.

THE FIVE PERCENTILES AND WHAT THEY MEAN

EXTREME-TAIL (below 3rd percentile or above 97th percentile)

This is the rarest territory on the map. Fewer than 3% of all historical closes ever reached these
levels. When price is here, something significant is happening. Either the market is in a genuine
structural breakdown (or breakthrough), or it has been pushed to an extreme by panic selling (or
euphoric buying) that cannot be sustained. This zone demands attention regardless of which
strategy is running.

For a mean-reversion strategy, EXTREME-TAIL is terrifying. When you are trying to fade a
move (bet it reverses) and price keeps pushing further and further into the tail, you are losing
money and the system warns you that a full structural break may be underway. This is the zone
where mean-reversion strategies exit entirely, because the statistical rubber band has either
snapped or the whole playbook has changed.

For a momentum strategy, EXTREME-TAIL is electrifying. It means a powerful, sustained trend

is in force. The very rarity of the price level confirms that real force is behind the move.
Momentum strategies lean into this zone, holding and sometimes adding to positions.

TAIL (3rd to 10th percentile low side / 90th to 97th percentile high side)

Extended but not yet in the realm of structural breaks. Price has moved significantly from its
centre of gravity. At this level, markets often develop a natural urge to revert. Think of a rubber
band: the further you stretch it, the greater the tension pulling it back toward its natural length. A
price in the TAIL zone has significant rubber-band tension built up against it.

Mean-reversion strategies begin to get excited here. This is the outer edge of their preferred entry
range. Momentum strategies are still participating, but they begin to watch more carefully for
signs of exhaustion.

OUTER SHOULDER (10th to 20th percentile low side / 80th to 90th percentile high side)
This is the most strategically important zone in the entire price distribution system. It is the
"sweet spot" for mean-reversion entries. Price is far enough from its centre to have meaningful
statistical reversion potential, but not so far that structural break risk becomes dominant. The
risk-reward balance here is at its most favourable for counter-trend trades.

For mean-reversion strategies, this is the primary entry trigger zone. When price is in the
OUTER SHOULDER, the system increases stop-loss generosity slightly (because you expect
some overshoot before the reversal), and extends the take-profit all the way back toward the
centre of the distribution (the CORE zone).

INNER SHOULDER (20th to 35th percentile / 65th to 80th percentile)

Early signal territory. The market is showing a directional lean, but has not yet reached a
statistically meaningful extreme. Think of this as the market warming up to either a bigger
trending move or a reversion setup. It is not a high-conviction entry zone for either momentum or
mean-reversion, but it tells the system that conditions are developing in a particular direction.

CORE (35th to 65th percentile)

The middle of the distribution. Price is exactly where it spends most of its time. There is no
statistical edge from the distribution alone here. Mean-reversion strategies do not want to enter
here because there is nowhere statistically compelling to revert from. Momentum strategies do
not want to close here because, if a real trend is running, the CORE is just a pit stop on the way
to a tail.

WHAT HAPPENS AT DIFFERENT ZONES: MEAN REVERSION VS.

MOMENTUM
Consider a long-only setup being evaluated for the mean-reversion strategy:

If price is at the OUTER SHOULDER (low side, 12th percentile), the system says: good
conditions for a reversion long. Stop goes just below the TAIL boundary. Target is the CORE.
Position size is at or near maximum for this strategy.

If price is at the CORE (50th percentile), the system says: no edge here from the distribution. The
mean-reversion strategy will not take this trade based on distribution alone, or will take a much
smaller size.

If price is at EXTREME-TAIL (2nd percentile) and the mean-reversion strategy is already in a

long, the system says: danger. This is not normal reversion anymore. Something may have
broken. Tighten your stop to the minimum and prepare to exit the moment price fails to recover.

Now the same setup for the momentum strategy:

CORE: no edge from distribution for momentum either. The market is balanced. No strong
directional push.

OUTER SHOULDER (high side, 85th percentile): momentum is building toward the tail. Good
conditions. Momentum strategy starts to size up.

EXTREME-TAIL (high side, 98th percentile): a powerful trend is confirmed by statistical rarity.
Momentum strategy is at maximum size, holding the position, waiting for trend exhaustion
signals from other regime filters before considering an exit.

III. Trend Regime

EMA Alignment, Slope, Higher Highs and Higher Lows

THE CORE IDEA

While the Price Distribution Regime tells you where price is, the Trend Regime tells you which
direction it has been moving and how organised that movement is. There is a big difference
between a price that is at its 80th percentile because it has been steadily grinding higher over
three months versus a price at the 80th percentile because it spiked up in a single day on a
news event. The trend regime captures this difference.

Three separate lenses are used together to classify the trend:

Lens 1: EMA Stack Alignment. The system tracks three exponential moving averages: a
fast one (short-period), a medium one, and a slow one (long-period). When all three are
stacked in order – fast above medium above slow for an uptrend, fast below medium below
slow for a downtrend – it tells you the trend is organised, consistent, and not just a random
fluctuation. When the EMAs are tangled together or crossing each other, it means the
market is confused and directionless.

Lens 2: Slope of the Moving Averages. Even when the EMAs are properly stacked, the
slope of those averages tells you whether the trend is accelerating, cruising at a steady pace,
or running out of steam. A steeply rising fast EMA means price is moving aggressively. A
nearly flat fast EMA means the trend is barely alive, even if it technically still exists.

Lens 3: Higher Highs and Higher Lows (or Lower Highs and Lower Lows). This is the most
traditional and time-honoured definition of a trend. In an uptrend, every swing high is
higher than the previous swing high, and every pullback low is higher than the previous
pullback low. In a downtrend, the opposite is true. This lens operates independently of
moving averages, so it can confirm (or contradict) what the EMA stack is showing.
 TREND PERCENTILES:

STRONG-UPTREND

All three conditions are met simultaneously. The fast EMA is above the medium, which is above
the slow. Price itself is sitting above all three, like a ball resting on top of a tiered set of
platforms. ADX (the trend strength indicator, covered in the next section) is above 40, which
means there is real power behind the move. The market is making higher highs and higher lows.
This is the clearest, most powerful bullish signal the system can generate. Momentum strategies
go to maximum size here.

UPTREND

The market is directionally bullish, but not every condition is perfectly met. Perhaps the EMA
stack is bullish and price is above the slow EMA, but ADX is between 25 and 40 rather than
above 40. Or perhaps two of the three lenses are clearly bullish and the third is borderline. It is a
clear uptrend, just not at maximum power. Momentum strategies size up, but not to the absolute
maximum.

WEAK-UPTREND

Some bullish signals exist but ADX is between 15 and 25, which means the trend is there but the
engine behind it is weak. It could strengthen into a full uptrend, or it could fade back into a
sideways range. Both momentum and mean-reversion strategies approach this zone with caution.
Position sizes are moderate.

RANGING

ADX is below 15, meaning there is essentially no directional trend. Price is going nowhere. The
EMA stack may be tangled. There are no consistent higher highs or lower lows; the market is
oscillating back and forth. This is the worst environment for momentum strategies (they will get
chopped apart by whipsaws) and one of the best environments for mean-reversion strategies (the
market keeps returning to its centre).

WEAK-DOWNTREND, DOWNTREND, STRONG-DOWNTREND

These are the exact mirror images of the uptrend labels on the bearish side.
STRONG-DOWNTREND means fast below medium below slow, price below all three, ADX
above 40, and consistently making lower lows. WEAK-DOWNTREND means bearish lean but
low ADX with limited conviction.

TREND-REVERSAL-UP or TREND-REVERSAL-DOWN
The system has detected that the trend was previously pointing clearly in one direction, and has
now flipped. This is a transitional state and typically one of the most volatile and dangerous ones.
When a downtrend reverses into an uptrend, there is usually a period of confusion where both
bulls and bears are fighting for control. Stops get hit more frequently during reversals because
the market does not move cleanly in the new direction yet. The system responds by slightly
tightening stops and reducing targets during this phase.

TREND-EXHAUSTION

This is a special and important label. It is triggered when the system was reading
STRONG-UPTREND (or STRONG-DOWNTREND) and then suddenly the trend drops to
WEAK in just a few candles. The freight train was moving at full speed and suddenly the engine
cut out. Price has not reversed yet, but the momentum has dried up. This is frequently the
precursor to a major reversal. The system responds aggressively: stop-loss multiplier drops to
0.7x (tighten the stop significantly), take-profit multiplier drops to 0.6x (take profit sooner, do
not wait for the usual target). Get out before the full reversal hits.

HOW THE TREND REGIME BLENDS WITH THE DISTRIBUTION REGIME

The Trend Regime and the Price Distribution Regime are not used independently. They are
blended together to produce the final exit parameters. For a momentum strategy, the Trend
Regime carries 60% of the blending weight and the Distribution Regime carries 40%. For a
mean-reversion strategy, the weighting flips: Distribution carries 60% and Trend carries 40%.
This means the primary lens depends on what the strategy is designed to do.

A REAL-WORLD ANALOGY FOR TREND PERCENTILES

Think of the market as a river. STRONG-UPTREND is a fast-flowing, deep river moving in a
clear direction – swimming with the current is easy. UPTREND is the same river but shallower
and a little slower. WEAK-UPTREND is a gentle stream that might dry up. RANGING is a still
pond. TREND-EXHAUSTION is a fast river that suddenly loses most of its flow – the
momentum is gone, and what was a powerful current is now barely moving.
TREND-REVERSAL is the moment the current starts flowing the other way. Do not be the
swimmer who realises too late.
IV. ADX Regime Filter
Average Directional Index — Pure Trend Strength, No Direction

WHAT IS ADX AND WHY IS IT DIFFERENT?

Most indicators tell you about the direction of price. Moving averages go up when price goes
up. RSI rises when buying pressure dominates. But the Average Directional Index (ADX) does
something fundamentally different: it measures the strength of a trend without caring at all
about its direction. A market in a powerful downtrend and a market in a powerful uptrend will
both produce a high ADX reading. A market going sideways will produce a low ADX reading
regardless of whether it is slightly above or slightly below where it started.

This makes ADX extraordinarily valuable. It is the answer to the question: "Is anything
happening right now, or is the market just making noise?"

ADX was created by J. Welles Wilder and published in his 1978 book New Concepts in
Technical Trading Systems. Despite being nearly 50 years old, it remains one of the most
robust and widely used trend strength indicators available.

Mathematically, ADX is derived from two sub-components called the Positive Directional
Indicator (+DI) and the Negative Directional Indicator (-DI). ADX is the smoothed, absolute
average of the relationship between these two. The higher the ADX, the more decisively one side
(buyers or sellers) is winning the daily battle. A low ADX means both sides are roughly equal,
resulting in a chopping, indecisive market.

PRACTICAL ADX THRESHOLDS: WHAT THE NUMBERS MEAN

An ADX below 15 is essentially a quiet market with no real trend. The candles are moving but
there is no engine behind them; price will likely close roughly where it opened on a weekly basis.
Between 15 and 25, a very weak trend may be forming, but it has not established itself yet.
Between 25 and 40, you have a genuine trend in place. Above 40, the trend has real conviction.
Above 50, the trend is unusually powerful and may be approaching exhaustion.

The system implements ADX classification in three different methods because no single method
is perfect in all situations. You can use whichever method best fits your data:

4A. RAW ADX CLASSIFICATION

The simplest approach. Take the current ADX number and compare it to fixed thresholds.

EXTREME-TRENDING (ADX >= 50)

The trend is at extreme strength. This level is genuinely unusual for most markets. It only occurs
during major sustained moves: a breakout from a long consolidation, a macro trend driven by
fundamental catalysts, or the final leg of a parabolic move. The paradox here is that
EXTREME-TRENDING, while impressive, actually reduces the size multiplier for momentum
strategies (to 0.80x instead of the 1.30x awarded to HIGH-TRENDING). The reason is that
trends this strong often precede exhaustion. The freight train is at maximum speed, which means
it is closest to the point where the engine will stall.

HIGH-TRENDING (40 <= ADX < 50)

This is the prime zone for momentum strategies. The trend has clear strength but is not yet at the
potentially-exhausted extreme. Price is moving with purpose. Pullbacks within this trend are
normal and should be expected without alarming the system. Momentum strategies are awarded
the maximum standard size multiplier here (1.30x). Mean-reversion strategies, on the other hand,
see this as hostile territory (0.60x), because fading a market with an ADX of 45 is fighting a
moving freight train.

MODERATE-TRENDING (25 <= ADX < 40)

A standard trending environment. This is where markets spend a reasonably large fraction of
their time when they are not ranging. Directional bias is clear but the trend is not unusually
strong. Both momentum (1.10x) and carefully positioned mean-reversion (0.90x) strategies can
operate here, though neither is at its best. Momentum has a slight edge but must keep stops
wider.

LOW-TRENDING (15 <= ADX < 25)

Trend is present but barely. The signal is mixed. Momentum strategies should reduce their size
(0.80x) because the weak trend increases the probability of a whipsaw – price reversing suddenly
and stopping you out before the real move occurs. Mean-reversion starts to become viable
(1.10x) because the low trend strength means the market is more likely to oscillate than trend.

CHOPPY (10 <= ADX < 15)

Below the threshold of a meaningful trend. The market is ranging, generating noise, and making
it very easy to get stopped out repeatedly on trend-following entries. This is one of the most
dangerous environments for momentum strategies (0.50x size – cut in half). It is simultaneously
prime territory for mean-reversion (1.30x), because a choppy market is one where buying low
and selling high works consistently.

EXTREME-CHOPPY (ADX < 10)

The quietest possible market conditions. ADX has collapsed to near-zero, meaning directional
movement is at a historical minimum for this instrument. This might happen around major
holidays when volume dries up, or during extended sideways consolidations that have gone on so
long that the market is completely balanced. Momentum strategies are cut to 0.30x (barely
trading at all). Mean-reversion is at 1.20x but even it must be careful because in truly dead
markets, even small reversion trades may take a very long time to play out.

4B. PERCENTILE ADX CLASSIFICATION

Raw ADX thresholds work well in general but have an important weakness. What constitutes a
"strong trend" depends on the market. Bitcoin might regularly produce ADX readings of 45 to 60
during its normal trending phases. A bond market might rarely exceed an ADX of 25 even during
its most powerful directional moves. If you use the same fixed thresholds for both, the bond
market would almost never register HIGH-TRENDING, and Bitcoin would almost always be in
EXTREME-TRENDING.

The percentile approach solves this by replacing fixed thresholds with relative ones. Instead of
asking "is ADX above 40?" it asks "is today's ADX in the top 25% of ADX readings seen for this
instrument over the past 100 periods?"

The ADX value is ranked inside a rolling window to produce a percentile from 0 to 100. A
percentile of 90 means today's ADX is higher than 90% of all ADX readings in the recent
window. A percentile of 10 means ADX is lower than 90% of recent readings.

EXTREME-TRENDING (ADX percentile > 90th)

ADX is at its highest 10% over the rolling window. Whatever this market considers a powerful
trend, it is in one right now. This is historically elevated trend strength for this specific
instrument, regardless of what the raw ADX number happens to be.

HIGH-TRENDING (75th to 90th percentile)

Trend strength is in the top quarter of recent history. This is consistently the best zone for
momentum strategies because it represents genuine elevated trend strength relative to this
market's own norms.

MODERATE-TRENDING (50th to 75th percentile)

Above-average trend strength. Normal conditions for trading.

LOW-TRENDING (25th to 50th percentile)

Below-average trend strength for this instrument right now. Caution for trend-following.

CHOPPY (10th to 25th percentile)

ADX is near the low end of its recent range. Ranging conditions.

EXTREME-CHOPPY (below 10th percentile)

ADX is at its historical minimum for this lookback window. The most dormant conditions this
instrument typically produces.

The percentile method is generally preferred over raw thresholds because it adapts automatically
to each instrument and to changing market regimes over time.

HOW ADX REGIME AFFECTS STOP-LOSS WIDTH

The ADX regime carries the highest single weight in the stop-loss calculation (35%), making it
the most important filter for determining how much room a trade needs to breathe.

For momentum strategies: high trend strength means the market will make deep pullbacks
within the trend. Set a tight stop in a HIGH-TRENDING market and you will be stopped
out on every normal retracement before the trend continues. HIGH-TRENDING gets a
1.30x stop multiplier – widen the stop to accommodate the typical pullback depth of a
trending market. CHOPPY markets use a tight stop (0.50x) because if a momentum trade
fails in a choppy market it fails fast, and there is no reason to give it room to bleed.

For mean-reversion strategies, the logic inverts: high trend strength is dangerous for
fading. A market with ADX of 45 can stay statistically overextended far longer than any
model expects. The stop must be tighter (0.60x) because if the reversion thesis is wrong, you
want out quickly rather than letting a trending market run the stop far from entry.

V. Slope Distribution Regime

How Fast Is Price Actually Moving?

THE DIFFERENCE BETWEEN ADX AND SLOPE

ADX tells you that a trend exists and how strong it is. Slope tells you something subtly different:
how fast price is actually moving in that trend right now.

Consider two markets, both with an ADX of 40 (HIGH-TRENDING). The first market has been
grinding steadily higher over 60 candles, moving about 0.3% per candle. The second market
spiked up 8% in a single candle after a news announcement. Both have similar ADX readings
because both have produced consistent directional movement. But the slope of the second market
is dramatically steeper. That slope tells you something ADX does not: the second market is
moving at a pace that is probably unsustainable.
Slope is the speedometer. ADX is the odometer. Both tell you something true; together they tell
you more than either does alone.

HOW SLOPE IS CALCULATED

The slope is calculated as the change in the fast EMA over a short lookback period (typically 5
periods), then divided by the current price to normalise it:

slope = (EMA[today] - EMA[5 periods ago]) / current_price

Dividing by current price is important because it makes the measurement comparable across
different instruments. A price move of $1 on a $10 stock is 10% – massive. A price move of $1
on a $1,000 instrument is 0.1% – trivial. The normalised slope removes this distortion.

Like ADX, slope can be classified using raw values, rolling percentiles, or z-scores. The
percentile approach is typically most useful because it adapts to each market's normal speed.

SLOPE PERCENTILES:
EXTREME-STEEP-UP (slope above 2% per period, or above 95th percentile)

Price is moving parabolicly upward. This is the market equivalent of a vertical line. Parabolic
moves are visually dramatic and emotionally exciting, but they are inherently unstable. No
market can move in a straight vertical line indefinitely. At some point the buyers exhaust
themselves and there is no one left to buy at the elevated prices. The result is typically a sharp
and sudden reversal.

Both momentum and mean-reversion strategies treat EXTREME-STEEP-UP with caution. For
momentum, the size multiplier is actually reduced (0.70x for longs) compared to the optimal
zone, because entering a parabolic move is high-risk. For mean-reversion, this is a potential entry
signal for a reversal trade, but only with very tight risk controls.

STEEP-UP (slope 1% to 2%, or 80th to 95th percentile)

Strong, sustained upward momentum. Price is moving fast but not yet at parabolic extremes. This
is the sweet spot for momentum strategies entering or holding long positions. The move has
speed and conviction. In breakout mode, STEEP-UP gets the highest size multiplier of all slope
categories (1.40x), because a steep slope on a confirmed breakout is about as high-conviction a
signal as exists.

MODERATE-UP (slope 0.5% to 1%, or 60th to 80th percentile)

A healthy, sustainable uptrend slope. Price is moving up steadily but not rushing. This is actually
the optimal zone for long-term momentum hold trades because MODERATE-UP slopes tend to
persist longer than STEEP-UP slopes. The trade has room to continue running without imminent
parabolic reversal risk. Take-profit multiplier is at its highest here for standard momentum
(1.30x).

FLAT (slope -0.2% to +0.5%, or 40th to 60th percentile)

Minimal directional movement. The market is consolidating, going sideways, or in transition.

There is no engine moving price. Momentum strategies have little reason to stay in a trade here
(0.80x size), and the take-profit target is brought in closer (0.80x) because flat slope means the
expected price travel distance is low. This is not the time to expect a big move.

MODERATE-DOWN, STEEP-DOWN, EXTREME-STEEP-DOWN

The downward slope equivalents. For a long trade, these are increasingly hostile signals.
MODERATE-DOWN for a long means price is losing ground (size 0.50x, close sooner).
STEEP-DOWN for a long means price is moving against you meaningfully (size 0.30x).
EXTREME-STEEP-DOWN for a long is a capitulation signal; the position should likely be
exited immediately.

WHY SLOPE HAS HIGHER WEIGHT FOR TAKE-PROFITS THAN

STOP-LOSSES
Slope carries a 15% weight in stop-loss calculations, but a 30% weight in take-profit
calculations. This asymmetry is intentional and logical.

For stop placement, the most important questions are about trend strength and multi-timeframe
confirmation – is this trade fighting a bigger trend, and is there real momentum behind it? Slope
is less relevant for stops because even a slow-moving trade can have its stop hit if the trend
reverses; speed alone does not determine stop risk.

For take-profit placement, slope is paramount. The take-profit target represents how far price is
expected to travel. And the best predictor of how far price will travel is how fast it is currently
moving. A market with a STEEP slope is running hard; give it a bigger target. A market with a
FLAT slope is coasting; bring the target in.
VI. DI Spread Regime
The Scorecard Between Buyers and Sellers

UNDERSTANDING +DI AND -DI

Every single candle on a chart is a battle. The high of the candle tells you how far buyers pushed
price up during that period. The low tells you how far sellers pushed it down. The close tells you
who won the final battle at the end of the period.

The Positive Directional Indicator (+DI) accumulates and smooths the upward movement across
recent periods. It rises when today's high exceeds yesterday's high, capturing the incremental
gains buyers are making. The Negative Directional Indicator (-DI) does the same for downward
movement, rising when today's low is lower than yesterday's low.

ADX, as covered in the previous section, is derived from the relationship between +DI and -DI.
But the DI Spread goes back to the source material and looks at the gap between the two
indicators directly:

DI Spread = +DI - (-DI)

A DI Spread of +25 means buyers have a 25-point advantage over sellers right now. A DI Spread
of -15 means sellers are winning by 15 points. A DI Spread near zero means the contest is
roughly even – no clear winner.

This is fundamentally different from ADX. ADX would be high in both a DI Spread of +25 and
a DI Spread of -25, because both represent strong directional movement. But the DI Spread
tells you the direction of that dominance. ADX tells you there is a war happening; DI Spread
tells you who is winning.

DI SPREAD PERCENTILES:
EXTREME-BULLISH (spread > 30, or above 95th percentile)

Buyers are completely dominating the market. The positive DI is more than 30 points above the
negative DI. This level of bullish dominance is historically rare. At this extreme, an interesting
paradox applies: such dominant buying pressure is a sign that buying is becoming exhausted.
When everyone who wants to buy has already bought, there is no one left to push price further.
The last of the bulls have been fully committed. Mean-reversion traders see
EXTREME-BULLISH as a potential entry for a short reversion trade. Momentum traders reduce
their long size slightly (0.80x) as a precaution against imminent reversal.

STRONG-BULLISH (spread 20-30, or 80th-95th percentile)

Clear, decisive bullish control. The buyers are winning and have a significant lead, but without
being at the exhaustion extreme. This is the prime confirmation signal for long entries in
momentum strategies (1.30x size multiplier). It tells you not just that there is a trend, but that
buyers are actively and consistently winning the daily battle.

MODERATE-BULLISH (spread 10-20, or 60th-80th percentile)

Mild bullish advantage. Buyers have an edge but not a dominant lead. Think of it as buyers
winning the weekly battle but not every individual day. Longs have a slight statistical advantage
here (1.20x for momentum).

NEUTRAL (spread -5 to +10, or 40th-60th percentile)

The battle is roughly even. Neither buyers nor sellers have a meaningful advantage. Both sides
are trading blows and neither is landing the decisive blow. There is no DI Spread confirmation
for either long or short entries. The system applies neutral multipliers (1.00x) here.

MODERATE-BEARISH (spread -10 to -5, or 20th-40th percentile)

Sellers have begun to take the upper hand. Not dramatically, but consistently enough to register.
A long trade entered in MODERATE-BEARISH conditions is entering against the current
directional pressure. Size is reduced (0.70x for momentum longs).

STRONG-BEARISH (spread -20 to -10, or 5th-20th percentile)

Clear bearish control. Sellers are winning decisively. This is a hostile environment for long
trades (0.40x size) and a confirming environment for short trades.

EXTREME-BEARISH (spread below -20, or below 5th percentile)

Sellers are completely dominating. The mirror image of EXTREME-BULLISH, and equally
paradoxical: such extreme selling may be approaching exhaustion. Momentum short traders are
slightly cautious here; mean-reversion long traders start watching for an entry.

THE MOST IMPORTANT COMBINED SIGNAL: ADX PLUS DI SPREAD

ADX and DI Spread are meant to be read together. Here are the most important combinations:

High ADX + Strong Bullish DI: This is the gold standard confirmation for a momentum
long. ADX says the trend is strong; DI Spread says buyers are winning that trend. Size up
confidently.

High ADX + Neutral DI: Dangerous ambiguity. The trend is powerful but direction is
contested. This sometimes happens at major trend reversals where ADX is still elevated
from the previous trend while the new direction takes over. The system is cautious here.
High ADX + Strong Bearish DI for a long position: This is the most dangerous situation for
a long. The trend strength is real (high ADX) but it is a bearish trend (sellers winning the
DI battle). Being long here means you are directly fighting the current directional engine.
Size is cut severely.

Low ADX + Extreme Bullish DI: Buyers are pushing hard but the trend is not yet
established. This can be the early signal of a new trend developing. Watch carefully but do
not go to full size yet.

DIVERGENCE: THE EARLY WARNING SYSTEM

One of the most powerful uses of DI Spread is spotting divergence between price and directional
pressure. Classic bearish divergence: price continues making new highs, but the DI Spread is
falling (the bullish advantage is shrinking). This tells you that although price is still going up,
buyers are winning by less and less each period. The rally is aging. A reversal is more likely than
the surface price action suggests.

The system uses this implicitly through its momentum multipliers: as DI Spread transitions from
STRONG-BULLISH toward NEUTRAL, the size and target multipliers for longs decrease even
if price has not yet reversed.

BREAKOUT MODE AND DI EXTREMES

Standard momentum mode treats EXTREME-BULLISH with mild caution (0.80x) because of
exhaustion risk. Breakout mode reverses this logic. In a breakout, the EXTREME-BULLISH DI
reading is confirmation that the breakout has genuine force behind it – not that buyers are
exhausted, but that the breakout is real and the crowd is catching on. Breakout mode awards
EXTREME-BULLISH a 1.30x size multiplier for longs, the highest available.

VII. Higher Timeframe Alignment Regime

Are the Bigger Timeframes Helping or Hurting?

WHY THE BIGGER TIMEFRAMES MATTER MORE THAN YOU THINK

Every trading signal you see on the 1-hour chart exists inside a 4-hour chart, which exists inside
a daily chart, which exists inside a weekly chart. These timeframes are not independent. They are
nested inside each other like Russian dolls.

The bigger the timeframe, the bigger the participants that use it. Hedge funds, institutions, and
central banks operate on daily and weekly charts. Swing traders operate on 4-hour and daily
charts. Day traders operate on 1-hour and 15-minute charts. When the daily chart is in a strong
downtrend, institutions are selling. Every bounce on the 1-hour chart is being sold into by forces
that are far larger than anything a 1-hour trader can muster. The 1-hour long trader is a small fish
swimming against an institutional current.

The HTF Alignment Score measures how much of that institutional current is with you or against
you.

HOW THE HTF ALIGNMENT SCORE IS CONSTRUCTED

The score is a composite of signals from multiple higher timeframes. For each higher timeframe,
the system looks at:

- Is the moving average stack bullish or bearish?

- What is the current trend label (uptrend, downtrend, ranging)?

- Is momentum (measured by ADX and slope on the higher timeframe) confirming the direction?

Each higher timeframe produces a sub-score from -100 to +100. These sub-scores are weighted
(nearer timeframes get more weight than distant ones, but all contribute) and combined into the
single HTF Alignment Score.

A score of +80 means: almost every signal on almost every higher timeframe is pointing bullish.
You are trading with the current. A score of -50 means: the higher timeframes are more bearish
than bullish. You are trying to swim against a moderate headwind. A score of -90 means:
everything above you is screaming bearish. Your long trade has almost every institutional force
against it.

HTF ALIGNMENT PERCENTILES

PERFECT-ALIGNMENT (score > 80, or above 90th percentile)

Every higher timeframe signal is bullish. The daily chart is in a strong uptrend. The weekly chart
is in an uptrend. The 4-hour chart is confirming the move. The institutional current is flowing
powerfully in your direction. This is the best possible HTF environment for a long trade, and the
system rewards it with the highest position size multiplier (1.40x). When you have
PERFECT-ALIGNMENT, the trade has tailwinds from every angle. You can afford to give it
more room (wider stop) and expect it to run further (bigger target) because the big picture is fully
supportive.

STRONG-ALIGNMENT (score 50-80, or 75th-90th percentile)

The majority of higher timeframe signals agree with the trade direction. Not perfect, but strongly
supportive. Perhaps the daily and weekly are bullish but the monthly is neutral. Still a
high-quality environment. Size is 1.20x for momentum.

MODERATE-ALIGNMENT (score 20-50, or 50th-75th percentile)

Mixed signals. Some higher timeframes are supportive, some are neutral, perhaps one is mildly
against. The institutional current is not strongly against you but it is not strongly helping either.
Normal conditions. Size is 1.00x (no adjustment in either direction).

WEAK-ALIGNMENT (score 10-20, or 25th-50th percentile)

The higher timeframes are beginning to work against the trade. More timeframes are
neutral-to-bearish than bullish, though not overwhelmingly so. The trade is partially swimming
against the current. Size is reduced (0.70x). The stop needs to be tighter because the HTF
pressure makes it easier for the trade to fail.

CONFLICTING (score -10 to +10, or 10th-25th percentile)

The higher timeframes are actively working against the entry direction. You are trying to go long
while the daily, weekly, and 4-hour charts are in downtrends. This is the definition of fighting the
tape. Momentum strategies are very reluctant to trade here (0.40x size). The system is not
completely prohibiting it – sometimes counter-trend signals do work – but it is extracting a
significant cost for taking this risk.

EXTREME-CONFLICT (score below -10, or below 10th percentile)

Every larger force in the market is pushing against the trade. The daily, weekly, and higher charts
are all in strong trends against your trade direction. This is like trying to throw a paper ball
against a hurricane. Momentum strategies are almost completely prohibited here (0.20x size –
10x reduction from PERFECT-ALIGNMENT). Mean-reversion strategies, which are designed to
be counter-trend, can still trade here, but must accept that the reversal will require the full
opposing institutional pressure to reverse, which takes time and produces wide, painful
drawdowns before the trade resolves.

THE INSURANCE POLICY ANALOGY

Think of HTF Alignment as insurance. When PERFECT-ALIGNMENT is in place, you are
trading with the full backing of the market's larger forces. The insurance is not needed because
the risk is low. When CONFLICTING is present, you are operating without insurance in a
high-risk environment. You can still do it, but you must compensate by taking less risk (smaller
size), expecting more resistance (tighter targets), and being prepared to exit more quickly (tighter
stops relative to the trade size).

The single most common reason for a trade being stopped out on a clean-looking lower
timeframe setup is an opposing higher timeframe trend. HTF Alignment exists specifically to
catch this before the position is opened rather than after.

HTF ALIGNMENT WEIGHT: WHY IT DOMINATES STOP-LOSS MORE THAN

TAKE-PROFIT
HTF Alignment carries a 30% weight in stop-loss calculations but only a 20% weight in
take-profit calculations. The asymmetry reflects the following reality:

When the HTF is against you, your stop WILL be tested. The HTF pressure creates selling into
every rally (for a long trade), which means pullbacks are deeper and more frequent. A tighter
stop in that environment gets hit before the trade has a chance to work. You need to be aware of
this by widening the stop or simply not taking the trade at full size.

But once a trade is in profit, the HTF has already failed to stop it. If a trade in CONFLICTING
HTF has made it 3% into profit, the immediate HTF pressure has been overwhelmed by whatever
local force drove the entry. The take-profit is then more influenced by the slope and DI Spread of
the immediate price action rather than the distant HTF.

VIII. How Active Regimes Drive Exits

The Integrated Exit Calculation Engine

The four regime filters described above do not operate in isolation. They all feed into a single
integrated calculation engine called RegimeExitCalculator. This is where all the individual
readings are converted into the three numbers the strategy actually uses: the stop-loss multiplier,
the take-profit multiplier, and the position size (stake) multiplier.

Understanding how the blending works is important because it explains why certain regimes can
dominate the outcome even if other regimes are favourable.

8A. STOP-LOSS MULTIPLIER

The stop-loss multiplier is a number that adjusts the width of the base stop-loss. The base
stop-loss itself is typically set by the strategy using ATR (Average True Range) or a fixed
percentage. The multiplier then scales that base up or down depending on market conditions.

A multiplier of 1.0 means: use the base stop unchanged.

A multiplier of 1.30 means: widen the stop by 30% beyond the base. The trade needs more room.
A multiplier of 0.70 means: tighten the stop to 70% of the base. The trade should exit faster if it
goes wrong.

Why would you ever widen a stop? Because in a strong trend, normal pullbacks are large.
If you trade a strong uptrend with ADX of 45 and set a tight 0.5% stop, you will get
stopped out on every single normal intraday retracement before the trend continues. The
solution is to widen the stop to accommodate the typical pullback size of a trending market.
Yes, you lose more if the trade is wrong, but you also stay in the trade when it is right.

Why would you tighten a stop? Because in a choppy, ranging market or in

TREND-EXHAUSTION, being wrong quickly is better than being wrong slowly. The trade
has no real engine behind it. If it fails, it will likely fail quickly. A tight stop gets you out fast
and preserves capital for the next trade.

The four regime contributions to stop-loss are weighted as follows:

ADX regime contributes 35% of the final stop multiplier.

HTF regime contributes 30% of the final stop multiplier.

DI Spread regime contributes 20% of the final stop multiplier.

Slope regime contributes 15% of the final stop multiplier.

ADX dominates because trend strength is the primary driver of how much room a trade needs.
HTF is the second largest weight because an opposing HTF trend is the primary reason stops get
hit prematurely.

The formula combining all four regime inputs into the distribution stop multiplier is:

distribution_sl = 0.35*adx_mult + 0.15*slope_mult + 0.20*di_mult + 0.30*htf_mult

But this distribution multiplier is not the final answer. It is then blended with the basic trend and
price distribution regime multiplier:

final_sl_mult = (0.60 * basic_trend_sl) + (0.40 * distribution_sl)

The 60/40 split means the basic trend regime (Section III) accounts for 60% of the final stop-loss
decision, and the more sophisticated distribution-weighted calculation accounts for 40%. For a
momentum strategy, this is the correct balance: the trend is the primary signal, and the four
distribution regimes refine and adjust that signal.

8B. TAKE-PROFIT MULTIPLIER

The take-profit multiplier works on exactly the same principle as the stop-loss multiplier, but it is
designed to answer a different question. Stop-loss asks: "How much room does this trade need
before I cut it?" Take-profit asks: "How far can this trade reasonably run?"

Because these are different questions, the weights assigned to each regime are different.

Slope regime contributes 30% of the final take-profit multiplier.

ADX regime contributes 25% of the final take-profit multiplier.

DI Spread regime contributes 25% of the final take-profit multiplier.

HTF regime contributes 20% of the final take-profit multiplier.

Slope is the dominant factor for take-profits because it is the most direct measure of price
velocity. The question "how far will this trade run" is most directly answered by "how fast is
price currently moving." A STEEP-UP slope means price is covering a lot of ground per candle;
stretch the target. A FLAT slope means price is barely moving; bring the target in.

ADX and DI Spread share equal importance (25% each) because they both tell you about the
sustainability of the move. High ADX says the trend is powerful; stretch the target. Strong
Bullish DI says buyers are actively in control; the move is likely to continue. Both together are
strong confirmation.

HTF gets the lowest weight for take-profits (20%) because, once a trade is running in your
favour, the immediate price dynamics – how fast it is moving right now (slope) and who is in
control right now (DI) – are more predictive of how far the current run will go than the distant
higher timeframe trend, which changes slowly.

The formula:

distribution_tp = 0.25*adx_mult + 0.30*slope_mult + 0.25*di_mult + 0.20*htf_mult

And the blend:

final_tp_mult = (0.60 * basic_trend_tp) + (0.40 * distribution_tp)

IX. Strategy-Specific Behaviour

Momentum, Mean Reversion, and Breakout Modes

WHY DIFFERENT STRATEGIES NEED DIFFERENT REGIME RESPONSES

The four regime filters are the same for every strategy type. What changes is how the multipliers
assigned to each regime label are interpreted. The same market condition that is ideal for one
strategy is often hostile for another.
Think about it this way. A surfer and a harbour pilot operate in the same ocean. The surfer wants
the biggest, most chaotic waves possible. The harbour pilot wants the calmest, smoothest
conditions possible. They both read the same weather report. But their interpretation of "what
does this condition mean for me today" is completely opposite. The regime system
accommodates this by having different multiplier tables for each strategy type.

MOMENTUM STRATEGY

Momentum strategies are designed to ride trends. They enter when a directional move has
established itself and hold until the trend weakens or reverses. They make money by staying in
winning trades for a long time and cutting losing trades quickly.

What momentum wants to see in the four regimes:

ADX: HIGH-TRENDING. The trend engine is running. There is real power behind the
move.

Slope: STEEP-UP or MODERATE-UP for longs. Price is actively moving in the desired
direction.

DI Spread: STRONG-BULLISH for longs. Buyers are winning the daily battle decisively.

HTF: PERFECT or STRONG ALIGNMENT. The bigger timeframes are pulling in the
same direction.

When all active filters are favourable, momentum sets wide stops to let the trend breathe and
extends targets to capture the full move. When ADX is CHOPPY or HTF is CONFLICTING, the
system penalises aggressively because these are the conditions where momentum strategies get
destroyed by whipsaws and stop-outs.

In the exit blending, momentum applies 60% weight to the basic Trend Regime and 40% to the
Distribution Regime, because trend direction is the primary guide for momentum.

MEAN REVERSION STRATEGIES

Mean reversion strategies are the philosophical opposite of momentum. They bet that when price
has moved too far in one direction, it will return to its average. They buy weakness and sell
strength, entering when the market has overextended.

What mean reversion wants to see:

ADX: EXTREME-CHOPPY or CHOPPY. No trend to fight. A choppy market keeps

reverting to its mean because there is no sustained directional force.
Slope: FLAT or mild in the opposing direction. The market is not accelerating away from
the mean; it is stalling.

DI Spread: Exhaustion at an extreme. For a reversion long, EXTREME-BEARISH or

STRONG-BEARISH DI tells you sellers were dominant enough to push price to an
extreme. Their dominance may be near exhaustion.

HTF: CONFLICTING. This sounds counterintuitive: why is an opposing HTF trend good
for mean reversion? Because when the daily chart is bearish and the 1-hour is trying to
form a bottom, the HTF pressure is what created the oversold extreme in the first place.
That same HTF pressure has now compressed a rubber band that is ready to snap back to
the 1-hour mean.

Mean reversion applies 60% weight to the Distribution Regime (where is price in its statistical
distribution?) and 40% to the Trend Regime. The primary trigger is that price is statistically
overextended, not that the trend is favourable.

When ADX is HIGH-TRENDING, this is the most important condition to respect: do not try to
fade a market that has a genuine, powerful trend behind it. A trending market can stay
"overextended" by any statistical measure for far longer than any mean-reversion model expects.
The rubber band thesis breaks down when the market is in a true trend.

BREAKOUT STRATEGY

A third mode, BREAKOUT, is tuned for a specific type of trade: price has consolidated, built up
energy, and then explodes through a resistance level with force. The goal is to enter on the
explosive move and hold it as it runs.

Breakout mode differs from standard momentum in how it interprets DI extremes and Slope
extremes. Where standard momentum is slightly cautious about EXTREME-BULLISH DI
(potential exhaustion at 0.80x), breakout mode rewards it strongly (1.30x), because a DI reading
at its historical extreme during a breakout is not exhaustion – it is confirmation that the crowd is
piling in and the breakout is genuine.

Similarly, STEEP-UP slope in breakout mode is the highest-rewarded zone (1.40x), compared to
MODERATE-UP being the optimum in standard momentum. In a breakout, steep price velocity
confirms the force of the move rather than warning of a potential parabolic reversal.

Breakout mode is appropriate for strategies designed around price level breaks, volume
explosions, and range expansion events.
X. The Combined Conviction Score
A Single Number That Summarises All Regime Information

After the four regime multipliers are calculated and combined into the combined-multiplier, there
is one more calculation: the conviction score.

The conviction score is not just a rescaled version of the combined multiplier. It is designed to
be a practical, intuitive 0-to-100 number that answers the simple question: right now, is the
market environment good for this trade, and how confident should we be?

A conviction of 100 means every regime filter is screaming in the same favourable direction. A
conviction of 0 means the regimes are either all hostile or completely divided against each other.
A conviction of 50 is neutral – the regimes are not providing useful directional information.

WHAT DRIVES CONVICTION UP OR DOWN

Conviction is primarily driven by the combined multiplier, but note that very low variance across
the four individual multipliers also increases confidence. When all four regimes produce similar
multipliers (e.g. all four are around 1.2x to 1.3x), the signals are coherent and consistent – high
conviction. When the four multipliers are all over the place (ADX says 1.30x, HTF says 0.40x,
DI says 1.20x, Slope says 0.60x), the signals are contradicting each other, which is itself a
warning sign. The engine is getting mixed messages from the market.

HOW TO USE THE CONVICTION SCORE IN PRACTICE

As a trade gate (entry filter): The simplest use is to require a minimum conviction score
before allowing a new trade to open. Setting a gate at conviction > 50 means only
neutral-to-good regime environments allow entries. A gate at conviction > 70 means only
clearly good environments. A gate at conviction > 80 means only the best-quality
environments. The higher the gate, the fewer trades are taken, but each trade has a
higher-quality regime environment behind it.

As an exit accelerator: If a trade is open and the conviction score drops below a threshold
(say, below 30), the strategy can tighten the stop or reduce the take-profit target. The
market environment has degraded since entry. Do not wait for the original target when the
environment is now hostile.

A CONVICTION SCORE INTERPRETATION GUIDE

Conviction 80 to 100: All active regimes are aligned and favourable. High-quality setup. Wide
stop. Extended target.

Conviction 60 to 80: Most regimes are favourable with minor mixed signals. Good setup. Normal
parameters.

Conviction 40 to 60: Mixed signals. Some regimes favourable, some neutral or slightly hostile.
Moderate setup. Standard parameters.

Conviction 20 to 40: Regime headwinds present. Multiple filters are giving negative signals.
Tighter parameters.

Conviction 0 to 20: The regime environment is poor. Multiple filters are hostile. Consider
skipping the trade entirely or treating any entry as tentative.

XI. Worked Examples

Walking Through Real Regime Scenarios

The following three examples walk through the full regime calculation for different market
scenarios. Each shows how the regime readings combine to produce the final stop and target
parameters.

EXAMPLE 1: PERFECT LONG SETUP (MOMENTUM STRATEGY)

The Market Conditions

A momentum strategy is evaluating a long entry signal. The current regime readings are:

ADX = 42. Classification: HIGH-TRENDING (raw threshold: 40-50 =

HIGH-TRENDING).

Slope percentile = 82nd. Classification: STEEP-UP (75th-95th percentile range).

DI Spread = +24 (buyers have a 24-point lead over sellers). Classification:

STRONG-BULLISH.

HTF Alignment score = 75 (the daily and 4-hour charts are both bullish). Classification:
STRONG-ALIGNMENT.

What Each Label Tells You in Plain English

ADX of 42 at HIGH-TRENDING means: there is a real trend here with genuine power behind it.
Not at the extremes that would suggest imminent exhaustion, but clearly and confidently
trending.
Slope at 82nd percentile means: price is moving faster than 82% of all recent readings. The move
has speed. Not parabolic, but strong and purposeful.

DI Spread of +24 at STRONG-BULLISH means: buyers are winning the daily battle by a wide
margin. The buying pressure is clear and consistent.

HTF at STRONG-ALIGNMENT means: the daily chart is in an uptrend and the 4-hour chart
confirms it. The institutional flow is broadly supportive of longs.

The Multipliers (Momentum Mode, Long Direction)

ADX multiplier: 1.30 (HIGH-TRENDING for momentum)

Slope multiplier: 1.20 (STEEP-UP for momentum longs)

DI multiplier: 1.30 (STRONG-BULLISH for longs)

HTF multiplier: 1.20 (STRONG-ALIGNMENT for momentum)

The Calculations

Combined multiplier: (0.25 x 1.30) + (0.25 x 1.20) + (0.25 x 1.30) + (0.25 x 1.20) = 0.325 +
0.300 + 0.325 + 0.300 = 1.25

Conviction score: (1.25 - 0.50) x 100 = 75 out of 100. High conviction. This trade passes any
gate set at or below 75.

Stop-loss multiplier: 0.35(1.30) + 0.15(1.20) + 0.20(1.30) + 0.30(1.20) = 0.455 + 0.180 + 0.260

+ 0.360 = 1.255. Stop is widened by 25.5% relative to the base ATR stop. This is
appropriate because a HIGH-TRENDING market will have deeper intraday pullbacks.

Take-profit multiplier: 0.25(1.30) + 0.30(1.20) + 0.25(1.30) + 0.20(1.20) = 0.325 + 0.360 +

0.325 + 0.240 = 1.25. Target is extended by 25% relative to the base target. This is
appropriate because STEEP slope and STRONG-BULLISH DI both suggest the move has
room to run.

The Practical Outcome

If the base ATR stop was 2.0%, the final stop is 2.0 x 1.255 = 2.51%. If the base target was 4.0%,
the final target is 4.0 x 1.25 = 5.0%. The trade has more room to breathe and a bigger upside
target. The system is saying: this is a good trade in a good environment. Give it room and let it
run.

EXAMPLE 2: HOSTILE ENVIRONMENT (MOMENTUM STRATEGY)

The Market Conditions
The same momentum strategy looks at a long entry signal on a different day.

ADX = 12. Classification: CHOPPY (below 15).

Slope percentile = 48th. Classification: FLAT (40th-60th percentile).

DI Spread = -8 (sellers have a mild 8-point lead). Classification: MODERATE-BEARISH.

HTF Alignment score = -30 (the 4-hour chart is in a mild downtrend). Classification:
CONFLICTING.

What Each Percentile Tells You

ADX of 12 at CHOPPY means: there is essentially no trend. The market is going nowhere. Any
directional signal on the lower timeframe is extremely likely to be noise rather than a real move.

Slope at 48th percentile means: price movement is completely average. Nothing is happening
directionally. No engine.

DI Spread of -8 at MODERATE-BEARISH means: sellers currently have a mild edge over

buyers. A long trade is going against the immediate directional pressure.

HTF at CONFLICTING means: the 4-hour chart is pointing down. Institutional money is
currently selling. This long trade would be fighting that selling pressure.

The Multipliers (Momentum Mode, Long Direction)

ADX multiplier: 0.50 (CHOPPY for momentum – dangerous, cut in half)

Slope multiplier: 0.80 (FLAT for momentum longs – no engine)

DI multiplier: 0.70 (MODERATE-BEARISH for longs – directional headwind)

HTF multiplier: 0.40 (CONFLICTING for momentum – strongly reduce)

The Calculations

Combined multiplier: (0.25 x 0.50) + (0.25 x 0.80) + (0.25 x 0.70) + (0.25 x 0.40) = 0.125 +
0.200 + 0.175 + 0.100 = 0.60

Conviction score: (0.60 - 0.50) x 100 = 10 out of 100. Extremely low conviction. This trade
fails any gate set above 10.

Stop-loss multiplier: 0.35(0.50) + 0.15(0.80) + 0.20(0.70) + 0.30(0.40) = 0.175 + 0.120 + 0.140

+ 0.120 = 0.555. Stop is tightened to 55.5% of the base. For the same 2% base stop, the final
stop is only 1.11%. In a choppy market, if the trade is going to work it needs to work
quickly and cleanly.
Take-profit multiplier: 0.25(0.50) + 0.30(0.80) + 0.25(0.70) + 0.20(0.40) = 0.125 + 0.240 +
0.175 + 0.080 = 0.62. Target is compressed to 62% of base. For a 4% base target, the final
target is only 2.48%. The system does not expect this trade to run far.

The Practical Outcome

Position size is dramatically reduced (multiple multipliers below 1.0). Stop is tight. Target is
small. Conviction is 10 out of 100. Most strategies would gate this trade out entirely.

The regime system has correctly identified that this is not a good time to trade momentum longs.
The right response is simple: wait. The market will eventually give you a better regime
alignment.

EXAMPLE 3: MEAN REVERSION ENTRY AT AN OVERSOLD EXTREME

The Market Conditions

A mean-reversion strategy is evaluating a long entry. Price has been selling off and is now at an
extreme low reading.

ADX = 8. Classification: EXTREME-CHOPPY.

Price percentile = 8th (price is sitting near its 8th historical percentile, deeply oversold).
TAIL regime.

DI Spread = -15 (sellers have a significant 15-point lead). Classification:

STRONG-BEARISH.

HTF Alignment = -45 (the daily chart is in a medium downtrend). Classification:

CONFLICTING.

What Each Label Tells You in Plain English

ADX of 8 at EXTREME-CHOPPY: there is essentially no directional trend. Even though DI

Spread is bearish (sellers winning the daily battle), ADX says the trend behind that selling is
nearly non-existent. This is characteristic of a market that has sold off on low volume or
exhaustion rather than a powerful sustained trend.

Price at the 8th percentile (TAIL): price is sitting at a level that has only been seen 8% of the
time historically. It is significantly oversold by statistical standards. The rubber-band tension is
high.

DI Spread at STRONG-BEARISH: sellers have been winning the recent battles. This is why
price is in the TAIL zone. But for a mean-reversion strategy, this is not a negative signal – it is
context. The selling pressure is what pushed price to the statistical extreme in the first place.
 The question is whether that selling pressure is about to exhaust.

HTF at CONFLICTING: the daily chart is bearish. For a momentum strategy, this would be a
severe red flag. For a mean-reversion strategy, this is actually a green flag: the opposing HTF
trend is what compressed the rubber band. The reversion trade is betting that local buying
pressure will temporarily overwhelm the HTF selling pressure, pulling price back to the 1-hour
or 4-hour mean.

The Multipliers (Mean Reversion Mode, Long Direction)

For mean reversion, the multipliers are calculated using a different table than momentum:

ADX multiplier: 1.20 (EXTREME-CHOPPY is ideal for MR – no trend to fight)

Slope multiplier: 1.10 (relatively flat slope is good for MR entry)

DI multiplier: 1.00 (STRONG-BEARISH has exhaustion potential for MR longs)

HTF multiplier: 1.20 (CONFLICTING for MR = rubber band tension, rewarded)

The Calculations

Combined multiplier: (0.25 x 1.20) + (0.25 x 1.10) + (0.25 x 1.00) + (0.25 x 1.20) = 0.300 +
0.275 + 0.250 + 0.300 = 1.125

Conviction: (1.125 - 0.50) x 100 = 62.5. Moderate-to-good conviction for this type of trade.
Passes a gate of 60.

The distribution regime (price at 8th percentile = TAIL) further confirms and boosts the
mean-reversion multipliers. The combined output of the MR blending (60% distribution, 40%
trend) produces a final set of parameters where:

- Stop-loss is placed just below the structural swing low that created the TAIL reading

- Take-profit target is aimed toward the CORE of the distribution (near the 35th-50th percentile
range)

The Practical Outcome

The mean-reversion strategy enters the long. The DI Spread being STRONG-BEARISH was not
a reason to avoid the trade – it explained why the trade opportunity exists at all. The
EXTREME-CHOPPY ADX confirmed that the bearish DI did not have a powerful trend engine
behind it. The HTF conflict provided the rubber-band tension. The price being at the 8th
percentile was the trigger.

This is regime-aware mean reversion at its best: the system correctly identified that despite
bearish surface conditions, the structure of those bearish conditions (low ADX, statistical
extreme, HTF conflict as tension) is precisely what makes the reversal setup high probability.

XII. Parameters

ADX REGIME MULTIPLIERS

Regime Percentile Band Momentum × Mean Reversion ×

EXTREME
> P90 0.80× 0.40×
TRENDING

HIGH TRENDING P75 – P90 1.30× 0.60×

MODERATE
P50 – P75 1.10× 0.90×
TRENDING

LOW TRENDING P25 – P50 0.80× 1.10×

CHOPPY P10 – P25 0.50× 1.30×

EXTREME CHOPPY < P10 0.30× 1.20×

SLOPE MULTIPLIERS FOR LONGS (MOMENTUM)

Regime Long × Short ×

EXTREME STEEP UP 0.70× 0.20×

STEEP UP 1.20× 0.30×

MODERATE UP 1.30× 0.50×

FLAT 0.80× 0.80×

MODERATE DOWN 0.50× 1.30×

STEEP DOWN 0.30× 1.20×

EXTREME STEEP DOWN 0.20× 0.70×

DI SPREAD MULTIPLIERS FOR LONGS (MOMENTUM)

Regime Long × Short ×

EXTREME BULLISH 0.80× 0.30×

STRONG BULLISH 1.30× 0.40×

MODERATE BULLISH 1.20× 0.70×

NEUTRAL 1.00× 1.00×

MODERATE BEARISH 0.70× 1.20×

STRONG BEARISH 0.40× 1.30×

EXTREME BEARISH 0.30× 0.80×

HTF ALIGNMENT MULTIPLIERS (MOMENTUM)

Regime Momentum × Mean Reversion ×

PERFECT ALIGNMENT 1.40× 0.80×

STRONG ALIGNMENT 1.20× 0.90×

MODERATE ALIGNMENT 1.00× 1.00×

WEAK ALIGNMENT 0.70× 1.10×

CONFLICTING 0.40× 1.20×

EXTREME CONFLICT 0.20× 1.00×

TREND REGIME EXIT MULTIPLIERS

Trend Regime Stop Loss × Take Profit ×

STRONG UPTREND 1.30× 1.50×

STRONG DOWNTREND 1.30× 1.50×

UPTREND 1.15× 1.25×

DOWNTREND 1.15× 1.25×

WEAK UPTREND 1.00× 1.00×

WEAK DOWNTREND 1.00× 1.00×

RANGING 0.80× 0.70×

TREND REVERSAL UP 0.90× 0.80×

TREND REVERSAL DOWN 0.90× 0.80×

 TREND EXHAUSTION 0.70× 0.60×

VOLATILE UPTREND 1.40× 1.30×

VOLATILE DOWNTREND 1.40× 1.30×

QUIET TREND 0.90× 1.10×

REGIME WEIGHTS IN THE EXIT CALCULATION

Regime Layer Stop Loss Weight Take Profit Weight

ADX Distribution 35% 25%

Slope Distribution 15% 30%

DI Spread 20% 25%

HTF Alignment 30% 20%

CONVICTION SCORE QUICK GUIDE

Score Range Signal Strength Sizing Guidance

0 – 20 Regime conflict Avoid — do not enter

20 – 40 Weak alignment Reduce — cut stake 50%

40 – 60 Mixed signals Normal — default sizing

60 – 80 Good alignment Increase — +20% stake

80 – 100 Exceptional alignment Maximum — full conviction

Final Summary
This regime filtering system is best thought of as a continuous environmental awareness engine.
Before every trade, during every trade, and at every candle close, the system is quietly reading
the market environment and adjusting its behaviour accordingly.

The available regime questions, applied according to the algorithm's methodology, are:

1. Is price in a statistically normal location, or has it moved to an extreme of its recent

distribution? (Price Distribution – the primary filter for mean-reversion)
2. How strong is the trend right now? Is there a real engine behind this move? (ADX – used by
trend-following strategies and as a confirmer for mean-reversion)

3. How fast is price moving in this trend? Is the move accelerating, sustaining, or stalling?
(Slope)

4. Between buyers and sellers right now, who is winning, and by how much? (DI Spread)

5. Do the 4-hour, daily, and weekly charts agree with what this entry signal is saying? (HTF
Alignment)

Each active filter feeds into a multiplier. Those multipliers are combined using carefully tuned
weights – different weights for stop-losses versus take-profits, because those two questions have
different determinants. The combined result flows into the final stop-loss width and the final
take-profit target.

The most important insight the system embodies is this: the right parameters depend entirely on
the environment, and the environment changes constantly. A stop that is too tight in a trending
market costs you the whole trade. A stop that is too wide in a choppy market costs you
unnecessary capital. A target that is too ambitious in a stalling market never gets hit. A target
that is too modest in a powerful trend closes the position before the real money is made.

By reading the relevant regime layers and combining them into a coherent, weighted output, the
system removes the guesswork from these decisions. When all active regimes are aligned, it
opens up parameters to capture the full move. When they are mixed, it proceeds cautiously.
When they are hostile, it largely steps aside and waits.

This is not about predicting the future. It is about reading the present accurately, and trading in
proportion to what the present is telling you.