Market Regime Classification Framework

A comprehensive market state identification system for quantitative trading strategy matching

1. Classification Dimensions Overview

Market state identification requires analysis across multiple dimensions:

Dimension	Sub-dimensions	Description
Trend	Direction, Strength	Determine market movement direction and momentum
Volatility	Amplitude, Frequency	Measure price fluctuation characteristics
Structure	Pattern, Phase	Identify market structure and cycle position

2. Primary Classification (5 Categories)

2.1 Classification Overview

Code	Name	Key Characteristics	Suitable Strategies
`TREND_UP`	Uptrend	Higher highs & higher lows	Trend following, Breakout
`TREND_DOWN`	Downtrend	Lower highs & lower lows	Trend following, Short selling
`RANGE`	Range-bound	Price oscillates within bounds	Grid trading, Mean reversion
`TRANSITION`	Transition	Uncertain directional period	Wait & watch, Small positions
`BREAKOUT`	Breakout	Price breaks key levels	Breakout trading

2.2 Identification Indicators

ADX (Average Directional Index): Measures trend strength
- ADX > 25: Clear trend exists
- ADX < 20: Range-bound market
EMA Alignment: Determines trend direction
- EMA20 > EMA50 > EMA200: Bullish alignment
- EMA20 < EMA50 < EMA200: Bearish alignment

3. Secondary Classification (18 Sub-categories)

3.1 Uptrend Sub-categories (5 Types)

Code	Name	Technical Features	Quantitative Indicators
`TU_STRONG_LOW_VOL`	Strong Uptrend · Low Vol	Steady rise, shallow pullbacks	ADX>40, ATR%<2%, Pullback<38.2%
`TU_STRONG_HIGH_VOL`	Strong Uptrend · High Vol	Rapid surge, high volatility	ADX>40, ATR%>4%, MACD histogram expanding
`TU_WEAK_CHOPPY`	Weak Uptrend · Choppy	Two steps forward, one back	ADX 20-30, RSI oscillating 50-70
`TU_PARABOLIC`	Parabolic Acceleration	Exponential price increase	Price far from MA, RSI>80, Volume surge
`TU_EXHAUSTION`	Uptrend Exhaustion	New highs but weakening momentum	Price new high + MACD/RSI divergence

Strategy Matching:

Strong Low Vol: Heavy trend following, pyramid adding
Strong High Vol: Medium position, trailing stops
Weak Choppy: Light swing trading
Parabolic: Cautious, prepare to exit
Exhaustion: Reduce positions, prepare for reversal

3.2 Downtrend Sub-categories (5 Types)

Code	Name	Technical Features	Quantitative Indicators
`TD_STRONG_LOW_VOL`	Strong Downtrend · Low Vol	Steady decline, weak bounces	ADX>40, ATR%<2%, Bounce<38.2%
`TD_STRONG_HIGH_VOL`	Strong Downtrend · High Vol	Panic selling, wild swings	ADX>40, ATR%>5%, VIX spike
`TD_WEAK_CHOPPY`	Weak Downtrend · Choppy	Grinding lower with bounces	ADX 20-30, RSI oscillating 30-50
`TD_CAPITULATION`	Capitulation	High volume crash, extreme fear	RSI<20, Volume>3x average
`TD_EXHAUSTION`	Downtrend Exhaustion	New lows but selling pressure fading	Price new low + MACD/RSI divergence

Strategy Matching:

Strong Low Vol: Short trend following
Strong High Vol: Stay flat or light hedge
Weak Choppy: Wait for stabilization
Capitulation: Light bottom fishing possible
Exhaustion: Gradually build long positions

3.3 Range Sub-categories (4 Types)

Code	Name	Technical Features	Quantitative Indicators
`RG_TIGHT_LOW_VOL`	Tight Range · Low Vol	Extreme contraction, coiling	BB Width<2%, ATR at new lows
`RG_TIGHT_HIGH_VOL`	Tight Range · High Vol	Violent swings within range	BB Width<3%, ATR%>3%
`RG_WIDE_LOW_VOL`	Wide Range · Low Vol	Large range, slow movement	BB Width>5%, ATR%<2%
`RG_WIDE_HIGH_VOL`	Wide Range · High Vol	Large range, fast movement	BB Width>5%, ATR%>3%

Strategy Matching:

Tight Low Vol: Dense grid, wait for breakout
Tight High Vol: Fast grid, small frequent profits
Wide Low Vol: Sparse grid, patient holding
Wide High Vol: Swing trading, high profit targets

3.4 Transition (2 Types)

Code	Name	Technical Features	Quantitative Indicators
`TR_BOTTOM_FORMING`	Bottom Forming	Decline slowing, testing support	Price stabilizing + Volume drying up + RSI divergence
`TR_TOP_FORMING`	Top Forming	Rally slowing, testing resistance	Price stalling + Volume drying up + RSI divergence

3.5 Breakout (2 Types)

Code	Name	Technical Features	Quantitative Indicators
`BK_UPWARD`	Upward Breakout	Breaking resistance with volume	Price>Previous high, Volume>2x, BB breakout
`BK_DOWNWARD`	Downward Breakout	Breaking support with volume	Price<Previous low, Volume>2x, BB breakdown

4. Tertiary Classification (36 Ultra-fine Categories)

4.1 Trend Phase Classification

Uptrend lifecycle consists of 5 phases:

Phase Code	Name	Description	Quantitative Criteria
`TU_S1_INITIATION`	Uptrend Initiation	First break above MA or previous high	MACD bullish cross, Price>EMA20
`TU_S2_ACCELERATION`	Uptrend Acceleration	Momentum increasing, slope steepening	MACD histogram expanding, ADX rising
`TU_S3_MAIN_WAVE`	Main Wave	Sustained rise, shallow pullbacks	RSI 60-80, Pullbacks hold EMA20
`TU_S4_EXHAUSTION`	Uptrend Exhaustion	Slowing momentum, divergences appearing	RSI divergence, MACD divergence
`TU_S5_REVERSAL`	Trend Reversal	Breakdown, trend ending	Break below EMA50, MACD bearish cross

Downtrend phases follow same pattern: TD_S1 through TD_S5

4.2 Range Position Classification

Position Code	Name	Description	Strategy Suggestion
`RG_UPPER`	Upper Range	Price near resistance	Bias toward short
`RG_MIDDLE`	Mid Range	Price near middle band	Neutral grid trading
`RG_LOWER`	Lower Range	Price near support	Bias toward long
`RG_SQUEEZE`	Squeeze Pattern	Highs and lows converging	Wait for direction
`RG_EXPAND`	Expanding Pattern	Highs and lows diverging	Boundary reversal

4.3 Volatility Grades

Code	Name	ATR%	BB Width	Strategy Suggestion
`VOL_EXTREME_LOW`	Extreme Low Vol	<1%	<1.5%	Option selling
`VOL_LOW`	Low Volatility	1-2%	1.5-2.5%	Grid / Mean reversion
`VOL_NORMAL`	Normal Volatility	2-3%	2.5-4%	Trend following
`VOL_HIGH`	High Volatility	3-5%	4-6%	Momentum / Breakout
`VOL_EXTREME_HIGH`	Extreme High Vol	>5%	>6%	Reduce exposure / Hedge

5. Complete State Encoding Rules

5.1 Encoding Format

{Primary}_{Volatility}_{Phase}_{Position}

5.2 Encoding Examples

Full Code	Interpretation
`TU_LV_S3_M`	Uptrend_LowVol_MainWave_Middle
`TD_HV_S2_L`	Downtrend_HighVol_Acceleration_Lower
`RG_NV_SQ_U`	Range_NormalVol_Squeeze_Upper
`BK_HV_UP_M`	Breakout_HighVol_Upward_Middle

6. Core Identification Indicators

6.1 Trend Indicators

Indicator	Calculation	Criteria
ADX	14-period Average Directional Index	>40 Strong, 25-40 Medium, <25 Weak/Range
Trend Score	Composite EMA/MACD/Price structure	-100 to +100, Positive=Bullish, Negative=Bearish
EMA Alignment	Relative position of EMA20/50/200	Bullish/Bearish/Mixed alignment

6.2 Volatility Indicators

Indicator	Calculation	Purpose
ATR Percent	ATR(14) / Current Price × 100%	Measure relative volatility
BB Width	(Upper - Lower) / Middle × 100%	Measure price range
Volatility Rank	Current vol percentile in history	Determine vol level

6.3 Momentum Indicators

Indicator	Calculation	Criteria
RSI	14-period Relative Strength Index	>70 Overbought, <30 Oversold, 50 Neutral
MACD Histogram	MACD - Signal	Positive=Bullish momentum, Negative=Bearish
Momentum Score	Composite RSI/MACD/Volume	Measure current momentum

6.4 Structure Indicators

Indicator	Description	Purpose
Swing Structure	HH/HL/LH/LL sequence	Determine trend structure
Support/Resistance	Key price levels	Define trading range
Volume Profile	Volume-price relationship	Validate price action

7. Strategy Matching Matrix

7.1 Regime-Strategy Mapping

Regime Type	Recommended Strategy	Position Size	Stop Loss
Strong Uptrend · Low Vol	Trend following + Pyramid	60-80%	ATR×2
Strong Uptrend · High Vol	Momentum + Quick profit	40-60%	ATR×1.5
Uptrend Exhaustion	Reduce + Reversal short	20-30%	Previous high
Panic Decline	Wait or light bottom fish	10-20%	Wide stop
Low Vol Range	Grid trading	50-70%	Range boundary
High Vol Range	Swing trading	30-50%	ATR×2
Squeeze Pattern	Wait for breakout	10-20%	-
Upward Breakout	Chase + Add on pullback	50-70%	Breakout level
Bottom Formation	Scale in gradually	20-40%	New low

7.2 Grid Strategy Parameter Matching

Range Type	Grid Levels	Grid Spacing	Other Parameters
Tight Low Vol	30-50 levels	Small spacing	Enable Maker Only
Tight High Vol	15-25 levels	Small spacing	Fast execution mode
Wide Low Vol	10-20 levels	Large spacing	Patient execution
Wide High Vol	15-25 levels	Large spacing	High profit targets
Squeeze Pattern	Pause grid	-	Wait for breakout signal
Upper Range	Short bias	Medium	Increase sell weight
Lower Range	Long bias	Medium	Increase buy weight

8. Real-time Monitoring Guidelines

8.1 State Transition Triggers

Current State	Trigger Condition	Transitions To
Range	Price breakout + Volume + ADX rising	Breakout
Uptrend	RSI divergence + Volume decline	Exhaustion
Downtrend	RSI divergence + Volume decline	Exhaustion
Breakout	Failed breakout, price returns	Range
Exhaustion	Confirmed reversal breakout	Opposite trend

8.2 Risk Control Rules

Regime State	Max Position	Risk Per Trade	Special Rules
Strong Trend	80%	2%	Adding allowed
Weak Trend	50%	1.5%	No adding
Range	60%	1%	Diversified holding
Transition	30%	1%	Reduce activity
High Volatility	40%	0.5%	Wide stops

9. Appendix

9.1 Abbreviation Reference

Abbrev	Full Form	Description
TU	Trend Up	Upward trend
TD	Trend Down	Downward trend
RG	Range	Range-bound market
TR	Transition	Trend transition
BK	Breakout	Breakout pattern
LV	Low Volatility	Low volatility regime
HV	High Volatility	High volatility regime
NV	Normal Volatility	Normal volatility regime
XLV	Extreme Low Vol	Extremely low volatility
XHV	Extreme High Vol	Extremely high volatility

9.2 Document Information

Version: v1.0
Created: January 2026
Applicable: Cryptocurrency, Forex, Stocks, and other financial markets

This document is designed for market state identification and strategy matching in quantitative trading systems