ML Regime Detection + Risk Overlay

Guide to Using the “ML Regime Detection + Risk Overlay” Tool
For Traders Seeking Smarter, Adaptive Risk and Trend Context

Highly Optimized for "The Way of Radius"

🔍 Overview
The ML Regime Detection + Risk Overlay is a custom Pine Script indicator designed to help traders adjust risk exposure and trade strategy based on prevailing market conditions. It uses a machine-learning-inspired regime classifier and overlays risk metrics directly on your chart.

This tool answers key questions like:

"Is this a normal or volatile market?"

"How much should I risk right now?"

"Are the current conditions favorable for trend-following or mean-reversion?"

🧠 Key Features
Feature Description
ML-Inspired Regime Classifier Detects Normal, Volatile, or Crisis market states based on calculated inputs.
Dynamic Risk Allocation Adjusts recommended Risk %, Reward/Risk Ratio, and Max Position Size for each regime.
Real-Time Risk Overlay Table Displays all key metrics in a visual table—color-coded for quick interpretation.
Volatility/Volume/Correlation Inputs Tracks ATR ratio, Volume Z-score, and SPX-VIX correlation for regime classification.
ADX Trend Confirmation Adds Average Directional Index (ADX) for validating trend strength (added in latest version).
Background Color Coding Shades the chart background green (normal), orange (volatile), or red (crisis) for intuitive regime awareness.

⚙️ Core Inputs Explained
Input Function
ATR Ratio Measures current volatility vs. recent average. High = turbulent.
Volume Z-score Spots volume spikes that may indicate panic or exuberance.
SPX-VIX Correlation A rising correlation suggests systemic risk—higher values indicate crisis risk.
ADX Measures trend strength. 20–25+ = trending; below = ranging.

📊 Table Metrics & Color Logic
Each table row reflects a vital market health indicator. Text colors are assigned based on threshold logic:

Green → healthy/normal

Yellow → approaching caution levels

Red → abnormal, elevated risk

Metric Role
ATR Ratio > 1.2 = volatile; > 1.5 = crisis
Volume Z-score > 1.0 = volatile; > 2.0 = crisis
SPX-VIX Corr. > 0.4 = volatile; > 0.7 = crisis
ADX > 25 = strong trend

💡 How to Use It
1. Gauge the Regime
Look at:

Background color

Table cell for "Regime"

ATR, Volume Z, SPX-VIX Correlation

📘 Tip: Avoid aggressive entries during “Crisis” regimes. Focus on high-R:R setups or small sizing.

2. Adjust Risk Settings
Use table guidance:

Risk % = how much of your account to risk

RR Ratio = suggested Reward/Risk target

Max Size % = ceiling for position size

📘 Tip: In Volatile or Crisis modes, reduce your size or wait for ADX to confirm strength.

3. Filter Entries with ADX
If ADX < 20–25: skip breakout trades; look for ranges or reversals.
If ADX > 25: trend-following entries (breakouts, pullbacks) are safer.

✅ Benefits
🧠 Smarter Trade Selection
Align entries with macro conditions (regime state) to reduce false signals.

📉 Downside Protection
Adapts position sizing and risk levels to avoid oversized losses during turbulent periods.

📈 Confidence in Trend Plays
ADX + Normal regime = strong green light for momentum/trend setups.

⏱ Time-Efficient Decision Making
Quickly interpret risk using the table and background without scanning multiple indicators.

🛠️ Suggested Use Cases
Use Case How to Apply It
Breakout Traders Only take breakouts in Normal regime + ADX > 25
Scalpers Avoid trading in Crisis regime; watch volume spikes
Swing Traders Use regime + ADX to time entries within larger trend context
Risk Managers Use the dynamic risk parameters to manage exposure per regime

🧪 Example Strategy Integration
Combine with:

Keltner Channels for entry zones

SuperTrend for trend filtering

Manual confirmation (candlestick patterns, S/R)

📘 Ideal when used with a position sizing engine
🧾 Conclusion
The ML Regime Detection + Risk Overlay is not just an indicator—it's a risk-aware market lens that adapts to changing conditions. It’s built to help you:

Trade what’s appropriate for the market’s current state

Avoid overexposure during risky times

Ride momentum with confidence during healthy periods

Use it as your daily dashboard before placing trades—and combine it with structured strategies for optimal results.