GARCH-Filtered Alligator Equilibrium Strategy

Family: hybrid · Regime: trending · Complexity: high · Asset classes: FX, Equities, Indices · Timeframes: H1, H4, D1

Thesis

Market trends are most tradable when volatility is clustering at moderate levels (regime), rather than during expansionary panics or low-liquidity drifts. By aligning macro-trend direction (Alligator) with price-equilibrium breakouts (Ichimoku) and volume confirmation (MFI), we can capture the meat of a trend. The Parabolic SAR acts as a final safeguard against the inevitable momentum decay seen in mature trends.

Components

• Conditional Volatility (CV) (regime) — Filters for 'volatility clustering' regimes. It ensures the strategy only operates when market risk is within a statistical 'sweet spot' (neither stagnant nor in a state of chaotic panic).
• Bill Williams Alligator (direction) — Acts as a macro-directional filter to ensure the 'mouth' of the trend is open and aligned before considering entries.
• Ichimoku Kinko Hyo (entry) — Provides the high-conviction trigger via Tenkan-Kijun crossovers above/below the Kumo (Cloud), ensuring price equilibrium is broken.
• Money Flow Index (MFI) (exit) — Identifies volume-weighted exhaustion points to exit the trend before price mean-reverts or the trend collapses.
• Parabolic SAR (risk) — Provides a mechanical, non-discretionary trailing stop and a hard risk-out signal when price momentum decelerates.

Known failure conditions

• Conditional Volatility remains at extreme highs (persistent panic) for >10 days while price trends.
• Price frequently pierces the Ichimoku Kumo but fails to sustain a 1:1 reward-to-risk ratio.
• MFI oscillates between 40-60 during a major price move, failing to trigger exit signals.

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