Adaptive Risk Regime Strategy (Volatility Switching Model)

Why this is trending now

Markets are not behaving the same all the time:

• Some periods → slow, sideways, low volatility
• Other periods → fast, explosive, high volatility Most strategies fail because they use the same rules in all conditions

So traders are now building strategies that:

• detect the current market regime
• switch behavior dynamically

This is becoming a big trend in Pine Script strategies

Strategy Idea

Instead of one fixed logic, this uses two modes:

Low Volatility Mode (Range Behavior)

1. Market is quiet
2. Trade small reversals
3. Avoid breakouts

High Volatility Mode (Trend Behavior)

1. Market is active
2. Trade breakouts
3. follow momentum

How It Works

Measure volatility using ATR
Compare current ATR with its average
Decide:

• Low volatility → mean reversion
• High volatility → breakout trading

Pine Script v6 Strategy Code

//@version=6
strategy("Adaptive Risk Regime Strategy", overlay=true, initial_capital=100000, default_qty_type=strategy.percent_of_equity, default_qty_value=5)


// ───── INPUTS ─────
atrLen   = input.int(14, "ATR Length")
lookback = input.int(50, "Volatility Lookback")


rangeLen = input.int(20, "Range Length")
rr       = input.float(2.0, "Risk Reward")
atrMult  = input.float(1.5, "ATR Stop Multiplier")


// ───── VOLATILITY REGIME ─────
atrVal = ta.atr(atrLen)
atrAvg = ta.sma(atrVal, lookback)


highVol = atrVal > atrAvg
lowVol  = atrVal < atrAvg


// ───── RANGE LEVELS ─────
rangeHigh = ta.highest(high, rangeLen)
rangeLow  = ta.lowest(low, rangeLen)


// ───── GLOBAL CROSS (fix warnings too) ─────
crossUp   = ta.crossover(close, rangeHigh[1])
crossDown = ta.crossunder(close, rangeLow[1])


// ───── LOGIC ─────
// Low volatility → mean reversion
longRange  = lowVol and close < rangeLow[1]
shortRange = lowVol and close > rangeHigh[1]


// High volatility → breakout
longBreak  = highVol and crossUp
shortBreak = highVol and crossDown


longCondition  = longRange or longBreak
shortCondition = shortRange or shortBreak


// ───── ENTRIES ─────
if longCondition and strategy.position_size == 0
    strategy.entry("Long", strategy.long)


if shortCondition and strategy.position_size == 0
    strategy.entry("Short", strategy.short)


// ───── RISK MANAGEMENT ─────
longStop   = strategy.position_avg_price - atrVal * atrMult
longTarget = strategy.position_avg_price + atrVal * atrMult * rr


shortStop   = strategy.position_avg_price + atrVal * atrMult
shortTarget = strategy.position_avg_price - atrVal * atrMult * rr


strategy.exit("Exit Long", from_entry="Long", stop=longStop, limit=longTarget)
strategy.exit("Exit Short", from_entry="Short", stop=shortStop, limit=shortTarget)


// ───── VISUALS ─────
plot(rangeHigh, color=color.green, title="Range High")
plot(rangeLow, color=color.red, title="Range Low")