Education

HOW-TO: Optimize Risk in Volatile Markets on TradingView

The Fractional Accumulation Distribution Strategy (FADS) is designed to dynamically optimize entry points and position sizing based on market conditions. It leverages volatility-based trend detection and adaptive scaling to identify high-probability demand and supply zones using ranges from higher timeframes.
In volatile markets, traders can improve capital allocation and optimize their personal risk preference in various ways when using FADS.

The settings used in this demonstration differ from the default script settings to highlight specific features or behaviors under unique market conditions. Users are encouraged to experiment with these parameters to suit their trading preferences.

USE CASES:

Adjust volatility setting to adapt to any timeframe
Traders with high risk tolerance can use lower volatility period to increase the frequency of accumulation and distribution phases which often results in entering at higher price levels.
To optimize for a better trend capture, the period can be increased to filter out minor fluctuations resulting in better entry and exit price levels.
Adjusting Volatility Input and Range for Higher Timeframes
Working with higher timeframes such as daily in a volatile market, reducing risk can be achieved by increasing the volatility input and reducing the period.
Adjusting Positions Spacing via Spreads Settings
The Accumulation and Distribution Spreads are one of the conditional components, defining how the strategy scales into positions during separate phases.
- Accumulation Spread determines the distance between additional buy positions during the accumulation phase.
  A trader with a lower risk tolerance can use larger value to increase the distance between buy orders, leading to fewer trades and a more conservative accumulation. In contrast, smaller values increase frequency of buy orders leading to a more aggressive accumulation.
  In extreme volatile markets, a larger distance between entry positions can significantly improve average cost of trades and capital conservation.
- Distribution Spread determines the distance between exits during the Distribution Phase.
  Larger value increases the distance between sell orders, reducing sell frequency and leading to more deliberate distribution.
  Smaller value decreases the distance, making the strategy more aggressive in taking profits or scaling out of positions.
  
  Increased DS forces strategy to distribute at higher price levels which in its turn increases potential profits as well as risks! Keep in mind that markets are unpredictable so increase it considering y risk tolerance.

Cross-Functional Setup for FADS
Here’s how the setup impacts performance across two scenarios:

Default Setup for 15-Minute Timeframe:
Using the default setting on smaller timeframes like 15 minutes naturally reduces the number of trades. This is due to filtering out short-term fluctuations and focusing on extreme price levels influenced by weekly volatility metrics. This approach works well for traders seeking fewer but more strategic entries and exits.
Custom Setup for Higher Trade Frequency for 15-Minute Timeframe:
For traders using smaller timeframes and seeking to capture more frequent fluctuations, the following adjustment approaches can help balance increased trade frequency while reducing risk.
1. Adjust Volatility Factor
  Reduce the volatility factor to 'Daily' from 'Weekly' to increase the number of trades by capturing more fluctuations.
2. Increase Period
  Increase the period to smooth trends and compensate for higher volatility, which helps filter out minor fluctuations and reduces overall trade count.
3. Increase Accumulation Threshold
  Raise the accumulation threshold to target lower price levels, which reduces trade frequency and lowers risk by focusing on more significant price drops.
4. Adjust Accumulation Spread
  Increase the accumulation spread to leave larger gaps between entry points during the accumulation phase, reducing risk.
  Additionally, uncheck the accumulation spread checkbox to increase frequency of trades at targeted zones.
Rationale:
By reducing the volatility factor to 'Daily,' the number of trades increases as smaller price fluctuations are captured. To offset the associated risks, adjustments to the accumulation threshold and spread help filter for better trade opportunities.

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