hyper/clp_auto_hedger/velocity_threshold_analysis.md

Velocity Threshold Analysis

Current Configuration

• VELOCITY_THRESHOLD_PCT = 0.008 (0.8% per 4-second interval)
• CHECK_INTERVAL = 4 seconds

Timeframe Analysis

Per 4 seconds (current):

• 0.8% price movement triggers HIGH VELOCITY alert

Per minute equivalent:

• 0.8% per 4 seconds = 12% per minute
• This is extremely volatile - typical crypto doesn't move 12% in a minute

Per hour equivalent:

• 0.8% per 4 seconds = 720% per hour
• This is impossible for normal market conditions

Analysis

Current Problem:

The 0.8% threshold is too sensitive for normal crypto markets:

• ETH typically moves 0.5-2% per HOUR, not per 4 seconds
• Getting -20% alerts indicates calculation was broken, but 0.8% may still be too low

Suggested Adjustments:

Conservative (Recommended):

VELOCITY_THRESHOLD_PCT = 0.002  # 0.2% per 4 seconds = 3% per minute

More Conservative:

VELOCITY_THRESHOLD_PCT = 0.001  # 0.1% per 4 seconds = 1.5% per minute

Very Conservative:

VELOCITY_THRESHOLD_PCT = 0.0005  # 0.05% per 4 seconds = 0.75% per minute

Recommendation

Start with 0.002 (0.2%) because:

• 3% per minute is still very volatile but possible during market stress
• Will catch real flash crashes and pumps
• Won't trigger on normal volatility
• Can be adjusted based on real-world testing

Context for Different Market Conditions:

Normal Market (90% of time):

• ETH moves <0.05% per 4 seconds
• Should not trigger velocity alerts

High Volatility (9% of time):

• ETH moves 0.1-0.3% per 4 seconds
• May trigger occasional alerts

Extreme Market Stress (1% of time):

• ETH moves >0.5% per 4 seconds
• Should trigger emergency protection
• This is when we want the override

The velocity protection should only trigger during genuine market emergencies, not normal volatility.