The biggest opportunities come at regime transitions. Here's how to identify and trade them.

Transition Signals:

Reflation → Air Pocket:

• Fed Net Liquidity (FED_NET_LIQUIDITY) peaks and turns down
• DXY bottoms and turns up
• Real yields start rising
• Credit spreads widen from tight levels
• VIX rises from complacent levels

Air Pocket → Reflation:

• Fed Net Liquidity (FED_NET_LIQUIDITY) troughs and turns up
• DXY peaks and turns down
• Real yields stabilize or fall
• Credit spreads peak and tighten
• VIX spikes to fear levels then falls

Transition Trading:

1. Early Recognition: Use leading indicators (connections)
2. Gradual Shift: Move 25% of portfolio per confirmation
3. Accept Imperfection: You'll be early or late sometimes
4. Stop Losses: Protect against wrong regime call

The Danger Zone:

Transitions are volatile. Both regimes' signals can flash simultaneously. This is when:

• Position sizing should be smallest
• Stop losses should be tightest
• Leverage should be zero
• Patience is required

Confirmation Signals:

Wait for 3+ of the 8 Connections to confirm before full transition:

• Net Liquidity direction clear
• DXY direction clear
• Credit spreads confirming
• Curve behavior consistent