Published 2026-10-14
Regime
A regime is a persistent market state — trending or ranging, calm or volatile. Strategies that work in one regime often fail in another, which is why a single backtest period proves little.
What it is
A regime is a persistent market state — trending vs ranging, calm vs volatile, risk-on vs risk-off.
Why one backtest period proves little
A strategy that works in a trending market can fail in a ranging one. A backtest over a single regime measures performance in that regime, not in general.
This is a common source of overconfidence: a rule tested only on a bull market has never been tested.
Regime handling in practice
| Approach | Trade-off |
|---|---|
| Ignore regime | Simple, but fragile to a change in conditions |
| Filter by regime | More robust, but the filter itself can overfit |
| Size by regime | Adjust exposure rather than switching off |
Note the trap: a regime filter is another parameter — and another thing that can be fitted to the past.
How to check
Ask whether the test period included more than one regime. A result from one market state is a conditional result, and the condition should be stated.