Geometric Index VWAP Mean-Reversion
Family: trend_following · Regime: trending · Complexity: high · Asset classes: FX (Major/Minor Pairs) · Timeframes: M15, D1
Thesis
Currency pairs exhibit the highest momentum when a specific currency's strength is broad-based across the market (Darwinex Index) and supported by long-term volatility cycles (D1 BB). In these high-conviction regimes, intra-day pullbacks to the Volume-Weighted Average Price (VWAP) represent institutional liquidity re-entry points rather than trend reversals. Volatility-adjusted sizing via RAE ensures exposure is reduced when price behavior becomes statistically erratic.
Components
- D1 Bollinger Bands (Period 90) on M15 (Forward Shifted) (regime) — Establishes the macro-volatility regime; price above the midline indicates a bullish multi-month bias.
- Darwinex Labs Currency Index (direction) — Filters for true currency strength by ensuring the chosen pair's movement is backed by broad-market currency demand, not just local pair noise.
- Daily Volume-Weighted Average Price (VWAP) (entry) — Acts as the 'Fair Value' anchor; entry occurs on a cross or touch of the VWAP to ensure we aren't buying at intra-day extremes.
- FractalScanner (exit) — Provides objective market structure points for trailing stops and logic-based exits.
- Relative Absolute Error (RAE) (risk) — Used to scale position size; high RAE suggests price is deviating erratically from its mean (SMA100), requiring smaller exposure.
- Average Directional Index (volatility_filter) — Prevents entering during low-volatility 'slosh' where VWAP and Fractals generate false signals.
Known failure conditions
- The Currency Index remains flat while the specific pair trends (indicates idiosyncratic movement without broad currency backing).
- ADX drops below 20 for extended periods, leading to Fractal-based stop-outs in range-bound markets.
- Price oscillates across the VWAP multiple times in a single session without hitting a fractal exit.
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