How to Detect Regimes: Simple, Actionable Signals

You don’t need exotic math to classify regimes. Focus on a few indicators that capture persistence, volatility, and compression. Combine them as a scoreboard to cut noise.

Core regime diagnostics

• Average Directional Index (ADX): ADX above ~25 suggests a trending environment; below ~20 suggests range‑bound trading. Use 14‑period as a starting point on the 1h or 4h chart for swing trading, and 5–15 minutes for day trading.
• Bollinger Band Width (BBW): Narrow bands signal compression and potential ranges or breakout setups. A sudden expansion after a squeeze often kicks off momentum.
• Efficiency Ratio (ER) or Trend Strength: Measure how directional a move was versus the total path walked. Higher ER implies cleaner trends.
• RSI Regime Bands: In uptrends, RSI often holds 40–60 as a “bull range” and pushes to 80 on impulses. In ranges, RSI oscillates symmetrically around 50 and frequently tests 30/70 with quick reversals.
• Realized Volatility (ATR): Rising ATR indicates expansion; falling ATR suggests compression. Volatility conditions your stop distances and position sizing.

Playbook 1: Momentum (Trend‑Following) for Crypto

Momentum strategies aim to join existing moves. In crypto, the edge comes from persistence driven by narratives, funding flows, and 24/7 global participation. Keep it systematic and risk‑first.

Trend filter

• Price above rising 50 EMA and 200 EMA (slope up) on your anchor timeframe (e.g., 1h or 4h for swings; 5–15m for day trades).
• ADX ≥ 25 and BBW expanding compared with the last 20 bars.
• RSI bull range: pullbacks hold above 40–45.

Entries

• Breakout: Buy a close above a clearly defined prior high after consolidation (e.g., multi‑touch resistance). Avoid chasing extended candles; prefer tight‑range breaks.
• Pullback to dynamic support: Enter near 20–21 EMA or a prior swing high turned support when RSI resets to 45–55 and ADX remains firm.
• Structure alignment: Higher highs and higher lows on your execution timeframe; skip if structure is sloppy or overlapping.

Stops and exits

• Initial stop: 1.0–1.5× ATR below the swing low (longs) or above the swing high (shorts where permitted). In spot markets, you’ll use only longs; for shorts you need margin/derivatives access and appropriate approvals.
• Trail: Use a chandelier exit (ATR‑based) or a 20 EMA close‑below/above rule. Lock partial profits at +1R or at prior structure levels.
• Invalidate: If ADX quickly falls under 20 and BBW compresses, treat it as a regime shift and flatten or tighten stops.

Position sizing

Target a constant volatility of P&L by sizing inversely to ATR. For example, if you risk 1% per trade and your stop is 1.2× ATR, your position size in units is Risk / (Stop Distance). This keeps risk consistent whether Bitcoin is quiet or ripping.

IF ADX(14) >= 25 AND BBW expanding AND Price > EMA50 > EMA200 THEN
  IF Close breaks above multi‑touch high OR Pullback to EMA20 holds
    Size = (Account * 1%) / StopDistance
    Place stop 1.2 * ATR below swing
    Take 1/2 at +1R, trail remainder with chandelier(3 * ATR)
ELSE no trade

Playbook 2: Mean Reversion (Range‑Trading) for Crypto

When crypto cools down, prices often oscillate around a fair value as liquidity providers fade extremes. In these conditions, breakout signals fail more often, and fading edges emerge.

Range filter

• ADX ≤ 20 with flat or slightly sloped EMAs; price weaving around the 50 EMA.
• Contracted Bollinger Bands (e.g., BBW in the bottom third of the last 60 bars).
• RSI mostly between 40 and 60, frequent tags of 30/70 without follow‑through.

Entries

• Fade extremes: Buy near the lower band or prior demand zone; sell near the upper band or supply (spot traders take longs only).
• Wait for confirmation: Look for exhaustion wicks, RSI divergence, or a micro double bottom/top near the band.
• Avoid the middle: The center of the range is “no‑edge” territory used for targets, not entries.

Stops and exits

• Initial stop: Just beyond the band or structure extreme (e.g., 0.8–1.0× ATR outside the range edge).
• Targets: First target at the midline (20 SMA or VWAP); second at the opposite band. Scale out—range trades pay in increments.
• Invalidate: If a breakout closes beyond the band with expanding volume/ATR and ADX ticks higher, assume regime shift to trend.

IF ADX(14) <= 20 AND BBW contracted AND EMA50 flat THEN
  IF Price tags lower band with bullish wick OR RSI divergence near 30
    Long with stop just below range low (0.9 * ATR)
    Take 1/2 at midline, 1/2 at upper band
    If candle closes beyond band with ATR expansion, exit remaining
ELSE no trade

Switching Between Playbooks: A Simple State Machine

Regime classification need not be perfect. You just need to be “more right than wrong” over time and keep losers small. Use a state machine that updates every bar on your anchor timeframe.

STATE = Trend if (ADX >= 25) + (BBW expanding) + (ER >= 0.3) + (EMA50 > EMA200 with slope) score >= 3
STATE = Range if (ADX <= 20) + (BBW contracting) + (ER <= 0.2) + (EMA50 flat) score >= 3
ELSE STATE = Neutral (trade smaller or stand aside)

IF STATE changes
  Flatten weak positions or tighten stops
  Switch to corresponding entry/exit rules next bar

Volatility‑aware sizing

Regardless of regime, normalize risk with ATR or rolling standard deviation. Many Canadian traders prefer a fixed daily risk budget (e.g., 1–2% of equity) and a max drawdown stop (e.g., pause trading for the day at −3R). This keeps you in the game when regimes whipsaw.

Execution Details: Order Types, Slippage, and Liquidity

Execution transforms theory into P&L. Crypto order books can thin out during off‑peak hours; spreads widen and slippage increases. Match your tactics to market conditions and your venue’s features.

Order types to master

• Limit orders for entries at levels in range regimes; reduce slippage but risk missing fills.
• Stop orders for breakouts; ensure they’re stop‑limit with a sensible limit offset to avoid runaway fills in fast markets.
• OCO (One‑Cancels‑Other) to pre‑plan exits: one bracket for take‑profit, one for stop‑loss; helpful for day traders.
• Trailing stops to lock momentum gains without micromanagement.

Timeframes and sessions

Although crypto is 24/7, liquidity and volatility cluster around overlapping North American and European business hours. For Canadian traders, that often means better fills and follow‑through during mornings and early afternoons. Thin Asia‑Pacific overnight hours can favor mean reversion on majors, but always verify on your instrument.

Canadian Context: Platforms, Rules, and Practicalities

Canada’s regulatory framework emphasizes investor protection through registration, KYC/AML, and transparent risk disclosures. As a trader, integrate these realities into your plan so you stay focused on performance—not paperwork surprises.

Exchanges and access

• Spot trading: Canadian crypto platforms such as Bitbuy, Coinsquare, NDAX, and Wealthsimple Crypto offer spot markets on major assets like Bitcoin and Ethereum. These platforms are subject to Canadian securities oversight and KYC/AML controls.
• Derivatives access: Many Canadian‑registered platforms limit or do not offer retail crypto derivatives. If you trade futures or perpetual swaps on other venues, confirm your eligibility, read the risk disclosures, and ensure compliance with Canadian rules and your platform’s terms.
• Custody and transfers: Expect address whitelisting, withdrawal holds, and compliance checks—these are normal under Canadian requirements and FINTRAC reporting obligations.

KYC/AML and FINTRAC

Canadian platforms collect identity information and monitor transactions to comply with anti‑money‑laundering laws. As a trader, maintain clean audit trails: keep records of deposits, withdrawals, and in‑platform transfers. If you move assets between self‑custody and an exchange, annotate the purpose (e.g., collateral top‑up, strategy rotation). It saves time if your account ever requires additional verification.

Tax basics for CRA reporting

• Crypto is generally treated as a commodity for Canadian tax purposes. Profits may be business income or capital gains depending on your activity. Frequent day trading with a profit motive can lean toward business income; longer‑term investing may be capital in nature.
• Keep detailed records: timestamps, asset, quantity, cost basis in CAD, proceeds in CAD, fees, and the wallet/exchange used. Many traders export CSVs and reconcile monthly to avoid year‑end pain.
• Capital gains inclusion rates and specific tax rules can change. Confirm current guidance each year and consider professional advice if you’re active or using derivatives.
• Swaps between crypto assets can be taxable events. Don’t forget fees and spreads—they affect your adjusted cost base (ACB).

Adapting the Playbooks to Canadian Exchanges

Even without derivatives, the regime approach works well on spot markets. Most Canadian exchanges offer BTC/CAD and ETH/CAD pairs, plus major stablecoin pairs. Liquidity is typically deepest in BTC and ETH, which suits both momentum breakouts and range fades.

Day trading on spot

• Momentum: Trade breakout continuations on BTC/ETH during high‑liquidity hours; use stop‑limit orders to control slippage.
• Mean reversion: In quieter periods, fade band extremes with small, quick targets; exit to the midline or VWAP.
• Execution discipline: Pre‑stage OCO brackets so you can step away without leaving risk unmanaged.

Swing trading with Canadian rails

For swing traders, CAD on‑ramps and off‑ramps on local exchanges simplify funding and tax records. You can spot‑accumulate during bullish regimes and reduce exposure during ranges. For advanced users who also maintain accounts on international venues, consider keeping regime detection consistent across platforms so signals don’t conflict.

Risk Management: The Constant Across Regimes

Your rules for risk matter more than your entry formula. Define them before you place a trade and honor them in real time.

Core rules

• Per‑trade risk cap: 0.5–1.5% of account value for most traders. Scalpers may go lower due to frequency; swing traders can lean slightly higher with wider stops.
• Daily stop: Pause after losing −2R to −3R in a day. Don’t let one session define your month.
• Volatility targeting: Adjust position size so that your dollar risk stays consistent when ATR expands or contracts.
• Event risk: Around major announcements, spreads can widen and slippage increases. Consider reducing size or skipping the first candle after the release.

Drawdown recovery math

A 20% drawdown requires a 25% gain to recover; a 40% drawdown requires 66.7%. That’s why small losses and steady position sizing beat hero trades. Your regime model helps avoid forcing a momentum strategy into a range or vice versa—which is where many large losses occur.

Psychology and Process: Consistency Over Excitement

Regimes protect your mindset. When you know you’re in a range, a failed breakout isn’t a personal failure—it’s a signal that your range playbook should be active. Reduce decision fatigue by codifying your steps.

Journaling and review

Tag each trade with the detected regime and whether it later shifted. Over a month, you’ll see where you misclassify and which signals are redundant. Many Canadian traders schedule a weekly review on Sunday evening to prep for the coming week’s liquidity cycles.

Backtesting and Forward Testing Without Overfitting

It’s tempting to tweak parameters until the backtest looks perfect. Resist. Your goal is robustness across assets and time. Start with sensible defaults (e.g., ADX 14, ATR 14, EMA 20/50/200), test on BTC and ETH first, then check a few large‑cap alts. Use out‑of‑sample periods and walk‑forward tests. Once you’re live, trade small for two to four weeks to validate real slippage and your own execution discipline.

Putting It All Together: A One‑Page Plan

Here’s a compact blueprint you can paste next to your screen and iterate over time.