Ichimoku-Darvas Error-Adjusted Trend Follower

Family: trend_following · Regime: trending · Complexity: high · Asset classes: Equities, Crypto, Forex · Timeframes: H1, H4, D1

Thesis

Market trends are most tradable when a macro-regime (Ichimoku) aligns with a local structural breakout (Darvas). However, trend-following often fails when price noise increases. By using Relative Absolute Error (RAE) to measure how well a low-lag model (ZLSMA) is currently tracking price, we can dynamically widen stops and reduce position size during 'noisy' breakouts, only taking high-conviction positions when price behavior is statistically 'orderly' relative to the trend.

Components

Ichimoku Kinko Hyo (regime) — Defines the macro-trend regime; trades are only taken when price is on the trending side of the Cloud (Kumo).
Darvas Boxes (Multi-Mode) (direction) — Identifies structural consolidation zones; the breakout of a box provides the directional bias.
MACD EMA Crossover Visualizer (entry) — Acts as the tactical trigger; entry occurs on the EMA crossover within the established Darvas/Ichimoku trend.
Chandelier Exit (exit) — Provides a volatility-adjusted trailing stop to capture the meat of a trend and exit upon reversal.
Relative Absolute Error (RAE) (risk) — Quantifies the 'noise' or 'prediction error' of the price relative to the ZLSMA; used to scale position size and adjust stop-loss distance.
Zero Lag Least Squares Moving Average (ZLSMA) (confirmation) — Used as a low-lag trend filter and the 'baseline' for the RAE error calculation.
Percentile Nearest Rank (25th, Length 14) with Data Hole Test (volatility_filter) — Ensures entries only occur when price is above its 25th percentile (bullish) or below its 75th (bearish) to avoid low-volatility 'dead' zones.

Known failure conditions

Ichimoku Cloud thickness exceeds 5% of asset price (indicates extreme volatility/uncertainty).
RAE remains above 1.5 for extended periods, suggesting the ZLSMA is failing to model price action.
Price oscillates through the Chandelier Exit line more than 3 times in 10 bars (choppy regime).

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