Chan-Kumo GARCH Structural Liquidity Strategy
Family: trend_following · Regime: trending · Complexity: high · Asset classes: Equities, Forex, Crypto · Timeframes: H1, H4, D1
Thesis
This strategy hypothesizes that institutional order flow is most visible at the convergence of recursive structural exhaustion (Chan Lun signals) and volume-defined liquidity gaps. By entering only when price aligns with macro momentum (Ichimoku Cloud) and at 'cheap' structural levels, the strategy seeks to capture high R:R moves while using GARCH-derived volatility to normalize risk across different market environments. The edge lies in filtering noisy 'market structure' signals with real-time volume intensity data.
Components
- Ichimoku Kinko Hyo (regime) — Establishes the macro-regime; the Cloud (Kumo) acts as a filter to ensure the strategy only trades in the direction of the established 26-period trend momentum.
- Chan Lun Engine (MT4 DLL version) (direction) — Provides the core directional bias based on recursive market structure. 2nd/3rd type signals represent structural pullbacks and hub breakouts which offer superior R:R compared to simple momentum.
- Dynamic Supply and Demand Zones [AlgoAlpha] (entry) — Serves as a 'value' filter; entries are only permitted when price is within a liquidity gap (low volume bin), ensuring we enter where institutional exhaustion or imbalance is likely.
- HiLo Activator (Pandini Version) (exit) — Acts as a trailing stop that responds to price action volatility, locking in profits during trend extensions while exiting on a definitive close beyond the high/low average.
- Conditional Volatility (CV) (risk) — Uses GARCH(1,1) to estimate current annualized risk. This allows position sizes to shrink during volatility clusters and expand during calm regimes, preventing catastrophic drawdowns.
Known failure conditions
- Annualized CV exceeds 3 standard deviations of its 1-year mean (regime shift to hyper-volatility).
- Chan Lun labels 'repaint' or disappear more than 3 times within a 50-bar window (indicates structural chaos).
- Price maintains a range within the Ichimoku Cloud for more than 40 consecutive bars (dead market).
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