Trading Regime Analysis: The Probability of Volatility

When it comes to trading regime analysis what really works? Will following the trend give the best results? Or maybe fading the trend? Or perhaps doing absolutely nothing? It comes down to the age old question – what is the Holy Grail of market analysis? Of course, all wise investors know that there is no such thing, but if you can identify the periods when trending behaviour or range trading behaviour is most likely to occur then your chances of long term success in the markets are increased dramatically.

In contrast to the plethora of ‘guru guides’ claiming to hold all the secrets to market success, Gunn provides a pragmatic approach to trading and investing drawing on his own thoughts and experiences from two decades in the financial markets.

Gunn simplifies market analysis by presenting a bi-polar world where the market cycles between rising and falling volatility. These fluctuations are driven by cycles in human emotion which can be anticipated by using technical market analysis rather than the normally lagging fundamental analysis. Gunn highlights that timing is everything when it comes to investing or trading and that in order to take advantage of the changing dynamics of the market price it pays to become an observer of the overall market psychology.

Existing methods of anticipating volatility cycles are examined, such as orthodox pattern recognition, Japanese candlesticks and the Elliott wave principle, as are new areas of research, including implied volatility curves, the volatility smile and the Trading Regime Indicator (TRI). A range of examples are also given of how an appreciation of volatility conditions can enhance trading results and case studies are included to highlight the application that trading regime analysis has for a broad array of market participants.