Law 1 – Correlation Regime Transition Law (CRTL)

Statement

In a universe of 28 currency pairs, systemic risk is flagged when overall volatility jumps sharply and correlations converge. We track all 28 pairs’ DAATS values as a vector V(t).

Mathematical Definition

• Volatility-Vector Norm:
  ||V(t)|| = sqrt(sum over i of DAATS_i(t)^2)
  In plain English: square each pair’s DAATS, sum them, then take the square root. Big spikes dominate the result.
• 30-Day Average:
  ||V||_hist(t) = (1/30) * sum_{k=1 to 30} ||V(t-k)||
  This averages the last 30 daily norms to create a baseline.
• Normalized Spike:
  Trigger if today’s norm ≥ [1 + δ*(std_dev_of_norm / average_norm)] * average_norm.
  Simply: today’s volatility must exceed its 30-day average by δ standard deviations.
• Eigenvalue Jump:
  Compute the correlation matrix of returns across all 28 pairs, then find its largest eigenvalue λ1(t). An eigenvalue measures how much of the total variance is explained by its corresponding eigenvector (principal component) – here, a high λ1 indicates that a single common factor (i.e. market-wide movement) dominates. If the change λ1(t) - λ1(t-1) exceeds the 90th percentile of past daily jumps, correlations are abnormally high, signaling a regime shift.

Action

1. Reduce exposure on instruments most aligned with the top eigenvector.
2. Increase each instrument’s break-even percentage by 5 percentage points until volatility and correlation normalize.

Instrument-Level Allocation

To spread the +5ppt break-even increase across pairs, calculate for each pair i:

DAATS_adj_i = max(DAATS_i – 0.15*σ_D, 0)
w_i = DAATS_adj_i / sum_j(DAATS_adj_j)
ΔBE_i = 5ppt * w_i

Then add ΔBE_i to each pair’s BE% in GATS.

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Law 2 – Weighted Decay of Historical DAATS (WDHDI)

Statement

We compute an “effective” DAATS for each pair by exponentially weighting its past DAATS values with a half-life that adapts to current volatility.

Mathematical Definition

• DAATS_eff_i(t) = sum_{k=0 to K_i} [λ_i(t)]^k * DAATS_i(t-k), where
• λ_i(t) = 0.5^(1/H_i(t)) and H_i(t) = H0_i * [ATR_P,i(t) / ATR̄_P,i]^κ.
• K_i = ceil(4 * H_i(t)) is the lookback length.

Explanation: When ATR is high, H_i grows, so λ_i is closer to 1 and old data decays more slowly. In calm markets, decay accelerates.

Instrument-Level Allocation

Each DAATS_eff_i is derived individually—no portfolio-level aggregation.

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Law 3 – Macro Shock Propagation Law (MSPL)

Statement

When a macro event surprises the market, we boost each pair’s DAATS based on its sensitivity and the shock’s magnitude.

Mathematical Definition

• S_m(t) = (RealizedVIX – ImpliedVIX) / σ_VIX or credit-spread surprise analog.
• ΔDAATS_i(t) = φ_i * |S_m(t)|^{γ_i}.
• Then DAATS_i(t) = max(prev_DAATS_i, prev_DAATS_i + ΔDAATS_i).

Explanation: If the shock doubles, DAATS increase scales by 2^{γ_i}. γ_i > 1 means superlinear jump in volatility.

Instrument-Level Allocation

All shock-induced adjustments are applied per instrument; no additional carve-up.

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Law 4 – Exposure & Death-Stop Law (E&DS)

Statement

For each EMA zone top P, set exposure multiplier X = ceil(sqrt(P)). The death stop is X × ATR_P. In low-ADX, low-ATR conditions, reduce X by 1.

Mathematical Definition

• X = ceil(sqrt(P)) (e.g. P=200 → X=15).
• DeathStop = X * ATR_P.
• If ADX<20 and ATR_P < 0.75*ATR̄_P, then X_adj = X - 1.

Explanation: √P scaling prevents linear blow-up of stops as EMA periods increase.

Instrument-Level Allocation

Compute DAATS_adj_i and weights as before. Then each pair’s death stop is DAATS_adj_i and its BE/Trail distance is 20% of that.

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Law 5 – Exit Only on Death (EOD)

Statement

Once in a trend, exit only if the price reverses by the full death stop or, after achieving a fractional gain, by that fractional distance.

Mathematical Definition

• Full Death Stop = DeathStop from Law 4.
• Fraction f(t) = (3/15)·[1 + 0.25·(σ_DAATS – σ̄_DAATS)/σ̄_DAATS], capped [0.15, 0.30].
• BE/Trail distance = f(t) * DeathStop.

Explanation: If dispersion is high, f(t) increases to allow deeper retracements; if low, f(t) tightens.

Instrument-Level Allocation

BE/Trail_i = f(t) * DAATS_adj_i for each pair.

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Law 6 – Adaptive Break-Even Decision Law (ADBED)

Statement

Cluster market conditions by R_vol = ATR_25/ATR_200 and ADX into Choppy, Moderate, Strong. Assign BE formula accordingly:

• Choppy: zone-specific BE
• Moderate: 0.6375×DAATS
• Strong: f(t)×DeathStop

Explanation & Rationale

Adjusting BE to regime keeps stops appropriate to dominant market behavior.

Instrument-Level Allocation

Each pair’s regime is determined individually, and its BE formula is applied directly.

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Law 7 – Portfolio-Level Break-Even & Noise-Budget Law (PLBND)

Statement & Formulas

Compute raw DAATS_sum and adjusted DAATS_adj_sum. Set BE band at [18%,22%] of DAATS_adj_sum. DeathStop_port = DAATS_adj_sum.

Mathematical Definition

• DAATS_adj_sum = Σ max(DAATS_i – 0.15·σ_D, 0)
• BE band = [0.18, 0.22]×DAATS_adj_sum
• DeathStop_port = DAATS_adj_sum

Explanation & Rationale

Subtracting a dispersion buffer prevents outliers from dominating. The band lets stops tighten gradually.

Instrument-Level Allocation

For each pair i:

DAATS_adj_i = max(DAATS_i – 0.15·σ_D,0)
w_i = DAATS_adj_i / DAATS_adj_sum
DeathStop_i = DAATS_adj_i
BE/Trail_i = 0.20·DAATS_adj_i
LowerBE_i = 0.18·DAATS_adj_i
UpperBE_i = 0.22·DAATS_adj_i

Pair	DAATS_adj	DeathStop_i	BE/Trail_i	LowerBE	UpperBE
EURUSD	2721.4	2721.4	544.3	489.8	598.7

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Law 8 – Transaction-Cost & Slippage Optimization Law (TCSOL)

Statement

Estimate slippage per trade:

• α_i = median(|ExecPrice – MidQuote|)/ATR̄_P,i
• Slippage_i = α_i * ATR_P,i

Adjust:

DeathStop_net,i = DeathStop_i + Slippage_i
BE_net,i = BE_i – Slippage_i

Explanation & Rationale

Incorporating slippage into stops ensures actual execution aligns with planned risk.

Instrument-Level Allocation

All net stops are calculated per instrument; no portfolio-level disaggregation is needed.

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Law 9 – Continuous Model Validation & “Law Rebirth” Law (CMV)

Statement & Procedures

Each week, measure each Law’s real-time performance (false positives, RMSE, BE-hit rates, etc.). If any metric drifts beyond 10% of its target, retrain that Law’s parameters on the last 90 days of data.

Explanation & Rationale

Regular validation and retraining keep the framework aligned with changing market dynamics.

Instrument-Level Allocation

Retraining is conducted per-instrument; no further portfolio-level steps are required.

Let us now apply the above Laws to our Gold Trade as at June 9, 2025.

Here’s the updated H1 Gold chart with the full ATR series (8 → 200), the 200-period EMA shifted forward by 100 bars (yellow dotted), and the 200-period Keltner Channel (3×ATR).

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Key Observations

1. ATR Series (8 → 200)
   • ATR(8): 7.85, ATR(15): 8.64, … ATR(200): 10.91
   • Volatility is highest on the longest lookbacks, but the compression from ATR(8) to ATR(50) → ATR(89) shows a settling after the big swing.
2. Forward-Shifted EMA 200 (Yellow Dotted)
   • This is your standard 200-bar EMA, projected forward by 50% of its period (100 bars).
   • Notice how price found support right on that projected line during the last major drop around June 6–7. That forward-looking EMA acted as a dynamic target for mean-reversion.
3. 200-Period Keltner Channel (3×ATR)
   • The lower band of the KC(200,3) provided nearly identical support to the forward EMA 200, confirming a strong confluence zone near 3302–3305.
   • When both a Keltner boundary and a forward EMA align, it greatly increases the odds of a bounce.
4. Signal Bars & Daily Trend Regime
   • On the right you can see the MT5 “Signal Bars” panel: all green on M1–D1 for MACD, Stoch, etc.—and crucially the daily regime indicator (EMA 50 vs EMA 89) remains bullish.
   • Even though H1 “looks choppy,” the higher‐timeframe uptrend is intact.

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How the Nine Laws Frame This

1. Law 4 (Exposure & Death-Stop):
   • With ATR 8 ≈ 7.85, √P exposures for P=8 → X=3 → DeathStop ≈ 3×7.85 ≈ 24 ticks.
   • In this confluence support zone, you might even tighten X_adj=2 (low ADX), so DeathStop ≈ 16 ticks.
2. Law 5 (Exit Only on Death):
   • f(t)≈0.20 → BE/Trail ≈ 0.20×(16 ticks) ≈ 3 ticks once in profit.
   • Place your entry just above the forward EMA+KC support, trail tightly to capture the bounce.
3. Law 6 (Adaptive BE Decision):
   • Today’s (ATR25/200≈0.97, ADX≈16) → Choppy regime → Option C zone-specific BE (≈16 ticks) is appropriate.
4. Law 7 (Portfolio Noise Budget):
   • For a single‐instrument portfolio, your noise buffer is exactly this 16-tick stop and a BE band around 3 ticks.
5. Law 8 (Slippage):
   • Add ~1 tick buffer to all stops → DeathStop_net ≈17 ticks, BE_net ≈2 ticks.
6. Law 9 (Validation):
   • After this bounce, track how often these support levels hold. If price breaks too often, consider shifting the forward EMA projection (e.g. try 80-bar shift) or adjusting your channel multiplier.

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Trade Plan

• Bias: Long only (daily regime bullish).
• Entry: on a 2nd close back above the yellow‐dotted EMA 200 (3305 area) or Keltner lower band (~3303).
• Death-Stop: ~17 ticks below entry (≈3318 – 331.7 = 3300.3).
• Break-Even: move to flat-OR-small profit after ~3 ticks (≈3321.5).
• Trail: thereafter by 3 ticks beneath each new high.

By combining the forward-shifted EMA support, Keltner confluence, and our adaptive stop rules, you maximize your chance to catch the next leg up while strictly controlling risk.

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About the Author

Dr. Glen Brown stands at the forefront of the financial and accounting sectors, distinguished by a career spanning over a quarter-century marked by visionary leadership and groundbreaking achievements. As the esteemed President & CEO of both Global Accountancy Institute, Inc., and Global Financial Engineering, Inc., he steers these institutions with a steadfast commitment to integrating the realms of accountancy, finance, investments, trading, and technology. This integrative approach has solidified their status as pioneering entities in global multi-asset class professional proprietary trading and education.

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Dr. Brown’s guiding philosophy, rooted in self-reflection and transformation, is mirrored in his professional journey. He believes in the power of self-consumption for rebirth, advocating for continuous personal and professional growth. This philosophy is not just theoretical but is applied in his daily leadership, teaching, and innovation practices.

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In essence, Dr. Glen Brown is not just a leader but a pioneer, educator, and innovator whose life’s work continues to impact the global finance and accounting industries profoundly. His legacy is defined by the relentless pursuit of excellence, the transformation of challenges into opportunities, and the unwavering belief in the potential for rebirth and regeneration in the professional realm.

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Risk Disclaimer

Trading CFDs and derivatives involves significant risk. This article is educational only and not financial advice. Always conduct your own due diligence and consult a licensed professional. Past performance does not guarantee future results; trade responsibly.