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Volatility-Filtered Carryswitch it off when the market gets loud

Evidence: StrongProfessionalCarry · Risk-managed

Carry's losses are not spread evenly through time. They arrive in bursts, and those bursts coincide with rising global currency volatility — which is the single most useful thing anyone has discovered about managing this trade.

So this page is the classic carry basket with one addition: a switch. When global FX volatility rises above its own recent norm, the book is cut or closed. It gives up some of the good years to avoid most of the worst weeks.

The return here comes from holding, not from being right about direction. That reverses the usual trade-off: time is on your side and volatility is against you, which is the opposite of everything else in this library.

Category
Carry · Risk-managed
Timeframe
Monthly rebalance · volatility checked weekly
Suitable pairs
The same G10 basket as the classic version
Session
Weekly close for the volatility read
Indicators / tools
A global FX volatility measure · as a retail stand-in, the average ATR(14) across your basket, normalised

Valid setup

CY-02 · VOLATILITY-FILTERED CARRY — VALID SETUP the same basket as the classic page · the volatility reading decides how much of it is held SIZE SWITCH 0.6537 0.6566 0.6595 0.6624 0.6654 0.6683 0.6712 VOLATILITY BELOW MEDIAN — full size ABOVE +1σ — FLAT ABOVE MEDIAN — half size TWO CLOSES BELOW — full size again cut to half here flat here — before most of the drawdown 1 2 3 vol rises peak passes re-entry 0.6662 0.6630 basket ATR(14) as the volatility stand-in — the research uses a global index ① Volatility crosses its median — size halved ② The unwind happens with the book already reduced ③ The switch reacts; it does not see it coming ④ Two weekly closes back under the median ⑤ Full size restored — at a worse price than exit ⑥ That worse price is what the insurance costs

Exact rules

Entry

  • Build the carry book exactly as the classic page describes.
  • Volatility read, every weekly close: compute the average normalised ATR(14) across the basket. This is a stand-in. The research uses a global FX volatility index built from a much wider set of currencies, and you should say so in your own notes.
  • Full size while that reading is below its 52-week median.
  • Half size when it is above. Flat when it is more than one standard deviation above. Re-enter only after two consecutive weekly closes back below the median.

Stop loss

  • The volatility switch is the stop. It is a portfolio-level rule and it fires on a state of the market, not on a price level.
  • Keep the 10% portfolio drawdown cut from the classic page as a second, independent backstop.
  • Total risk 2%–4% at full size, halved and then zeroed by the switch.

Take profit / exit

  • No target, same as the classic version.
  • Scaling back in after the volatility subsides will sometimes mean re-entering at a worse price than you left. That is the cost of the insurance and it has to be accepted in advance.
  • Measure how often the switch fires on your own data. If it fires every month, your volatility measure is too sensitive and you have built a different strategy.

Build Volatility-Filtered Carry

Reading this page is free and always will be. Taking it is what costs — the complete MQL5 for the rules above, yours to keep, permanently. Five of them cost $10 and they never expire.

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More from Carry & rates

Classic Currency Carrylong the high rate, short the low oneSingle-Pair Swap Harvestthe retail version, and what it really paysRate Expectation Repricingtrade the change in the forecast, not the rate

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.