An -8.65% hour inside a 19.74% gain week hits a loss limit built for calmer markets
After being cut on Sunday's drop, should the fund re-enter ETH at its full size, or return at a reduced size until its loss limit is rewritten for 116.3% annualised volatility?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 27 July 2020, ETH rose 19.74%, from 311.02 to 372.42, with a 35.96% range and 116.3% annualised realised volatility. Volume ran 3.09 times its prior 12-week average, and the week ranked in the 95th percentile of 128 weeks. On Sunday, at the weekly high of 415.85, ETH fell 8.65% in one hour and closed the day down 3.77%. An illustrative fund holding ETH was cut when its fixed loss limit triggered during that hour, after three of the previous four weeks rose, the latest by 30.06%.
Judgment
The cut was correct: the limit fired on an actual loss, not on a forecast. Re-entry at full size is not, because a limit set against calmer weeks can be hit again by a single hour like Sunday's without any change in trend. Return at a size whose loss limit absorbs an 8.65% hour, and reset the trigger from the recent hourly distribution, including 116.3% annualised volatility and funding averaging 0.0808% per eight hours, which is costly to carry. Accept missing part of the move in exchange for not being cut twice in the same regime.
What would change it
If hourly moves contract for several weeks below Sunday's 8.65% and eight-hour funding falls back towards its 0.0331% weekly low, the original limit and full size can be restored. A weekly close above 372.42 without an 8% hour would support the same step.
What sets this case apart
This is about the loss limit's calibration versus the market's current speed, not about whether the trend is up or down.