CMF-Mass Error Reversion

Family: mean_reversion · Regime: ranging · Complexity: medium · Asset classes: Equities, Forex Major Pairs · Timeframes: H1, H4

Thesis

Market participants often overreact to short-term directional shifts even when underlying institutional volume (CMF) remains constant. By entering when price momentum and DI-crosses signal exhaustion while volume pressure is still favorable, we capture the 'snap-back' to the mean. The Mass Index then identifies the point where the range-expansion of the reversal begins to contract, signaling the optimal exit.

Components

• Chaikin Money Flow (CMF) (regime) — Filters for institutional accumulation/distribution; entries only occur when the broader volume-weighted pressure aligns with the trade direction.
• Momentum (Example) (direction) — Identifies short-term overextension. In this mean-reversion setup, we look for price to be 'stretched' relative to its N-period history.
• ADX Crossing INGM (entry) — Provides the execution trigger. Per the provided logic, it detects 'bearish' crosses (+DI < -DI) to signal long entries, assuming these represent terminal exhaustion in an accumulation phase.
• Mass Index (MI) (exit) — Exits based on the 'reversal bulge'—a spike and subsequent contraction in the high-low range which typically signals trend exhaustion.
• Relative Absolute Error (RAE) (risk) — Quantifies current price dispersion relative to historical absolute error; used to scale position size inversely to statistical noise.

Known failure conditions

• Price enters a low-volatility 'drift' where the Mass Index fails to reach reversal thresholds (e.g., < 26.5).
• Prolonged divergence where CMF remains positive during a 20%+ price drawdown, indicating volume-price decoupling.

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