Nine-Box Market Classification System
The Nine-Box Market Classification System as used by Owl Group plays a central role in the daily and weekend reports and helps traders make informed decisions about overnight risk and market posture.
The system classifies the market using two dimensions:
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Price Trend: Bullish, Sideways, Bearish
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Volatility: Quiet, Normal, Volatile
These two are cross-tabulated to form 9 distinct market states, each with its own statistical implications for tomorrow’s return.
1. Price Trend (based on 200-day moving average)
Trend
Definition
Bullish
Sideways
Bearish
Price > 2% above 200 DMA
Price within plus/minus 2% of 200 DMA
Price > 2% below 200 DMA
Historical Insight
Tomorrow is up on average
Tomorrow if flat on average
Tomorrow is down on average
2. Volatility (based on ATR% over a 100-day window)
Volatility
Definition (by std. dev. rank)
Quiet
Normal
Volatile
Bottom 1/6 of volatility readings
Middle 2/3 of volatility readings
Top 1/6 of volatility readings
Historical Insight
Tomorrow is very good on average
Tomorrow is modestly positive on average
Tomorrow is flat, large swings up/down cancel
3. Market Classification
We have nine possible states
How Traders Use It
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Overnight Risk: Traders may choose to avoid overnight positions in Bearish or Volatile regimes.
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Position Sizing: Aggressive in Bullish Quiet, conservative in Bearish Volatile.
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Strategy Alignment: Combine market conditions with individual signal strength.
Why This Matters
The system is data-driven, based on 30 years (7800+ trading days) of empirical analysis. It equips traders with:
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Probabilistic Edge
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Contextual Awareness
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Emotional Filtering (e.g., do not be blindly bullish in a Bearish-Volatile market)