SPEC-EAV-001 v0.2 · Layer L2 Risk management
K-08 Response to volatility
K-08 tests whether the system reduces exposure when volatility rises. Each trade is assigned to a volatility regime and differences in volume and frequency across regimes are tested.
What it examines
Volume and trade frequency, grouped by the volatility regime at the time of entry.
How it is computed
Classify the volatility regime at each entry time. Test for differences in mean volume and trade frequency across regimes.
What a defect means
A system that does not reduce size in a high-volatility regime expands risk in proportion to the regime.
Judgment states
| Pass | The structure is observed and meets the threshold. |
|---|---|
| Caution | The structure is observed but sits at the boundary of the threshold. Evidence figures are presented alongside. |
| Defect | The structure is not observed, or clearly falls outside the threshold. |
| Not judgeable | The required input data is absent. Marked distinctly from a pass. |
Threshold
Not fixed. Determined from calibration data. See SPEC-EAV-001 §11.
Basis
Jung Chunghwa, FX Market Structure and Systematic Trading (2026), ISBN 979-11-220192-1-6. Research note R-001, Structural problems of EA-based systematic trading (2026-08-20).
Questions this item answers
- Should an EA reduce lot size in high volatility?
- How do I check whether my system adapts to volatility regimes?
Related items
Related terminology
Revision · SPEC-EAV-001 v0.2 · 2026-08-21