Volatility Regime Classifier | ATRP Percentile Zones

This indicator helps you understand the current volatility environment of any asset by comparing recent ATR-based values to its historical range.

It defines four regimes:

🔴 Low Volatility: Volatility is decreasing

🟢 Normal: Volatility is increasing but still below average

🟠 High: Volatility is elevated

🟣 Extreme: Volatility is very high compared to recent history

⚙️ How it works
We calculate the Average True Range (ATR) as a percentage of price (ATRP), then compare a short-term ATR to a longer-term one. Their difference shows whether volatility is picking up or slowing down.

To make the signal more adaptive, we look at the distribution of recent volatility over a rolling window. We compute the 50th and 70th percentiles of that history to set dynamic thresholds.

About distribution & percentiles
Volatility in financial markets doesn't follow a normal (Gaussian) distribution, it's often skewed, with sudden spikes and fat tails. That means fixed thresholds (like "ATR > 20") can be misleading or irrelevant across assets and timeframes.

Using percentiles solves this:

The 50th percentile marks the middle of the recent volatility range.

The 70th percentile captures a zone where volatility is unusually high, but not too rare, which keeps the signal usable and not overly sensitive.

These levels offer a balance:
⚖️ not too reactive, not too slow — just enough to highlight meaningful shifts.

✅ Use cases
Spot changes in market conditions

Filter or adapt strategies depending on the regime

Adjust position sizing and risk dynamically