The Variance Ratio Gate filter is a pass/block gate on the Lo–MacKinlay variance ratio of simple returns with q=2: variance of two-bar returns divided by twice the variance of one-bar returns, over a rolling window. When VR meets your compare condition against a threshold, the filter passes; otherwise it blocks. It never fires a buy or sell by itself.
VR near 1 is consistent with a random walk. Above 1 favors persistence/momentum; below 1 favors mean-reversion. Default VR > 1.0 pairs with trend stacks; flip to VR < for mean-reversion stacks.
When to use it
- Only allow momentum entries while returns look persistent (VR above ~1)
- Block trend bots when VR collapses toward mean-reversion
- Confirm a statistical regime without adding a directional rule
What you’ll set in the app
Add Variance ratio gate under filters.
- Window — number of simple returns in the sample (default 64; needs window+1 closes)
- Compare — VR >, <, ≥, ≤, or ≈
- Threshold — e.g.
1.0(default)
Warm-up history or near-zero return variance blocks the gate. Disabled passes.
Tips
- Defaults use VR > 1.0 for a mild persistence bias.
- There is no “side when true”—pair with breakout, MA, or other signal rules for direction.
- Pair with ADX Gate or Efficiency Ratio Gate when you want strength and path-efficiency alongside VR.
Example
Entry filters: Variance ratio gate, window 64, VR > 1.0. A momentum long only passes when recent returns look persistent rather than mean-reverting.