Kalman-Jurik Inefficient Spread Trader
Family: hybrid · Regime: ranging · Complexity: high · Asset classes: Equities, Crypto Pairs (e.g., ETHBTC), Forex Crosses (e.g., EURGBP) · Timeframes: 1H, 4H
Thesis
Mean reversion in asset pairs is most reliable when the Efficiency Ratio (ER) is low, indicating a lack of dominant trend and high 'noise.' By entering when the Kalman Z-score deviates significantly from the dynamic mean while volume flow (A/D) confirms the broader directional bias, we can capture high-probability reversals using Jurik envelopes to exit as price efficiency returns.
Components
- Efficiency Ratio (Kaufman) (regime) — Identifies 'noisy' market states where mean-reversion signals from the AI Pair System are more likely to hold, avoiding entries during strong fundamental trend breakouts.
- Accumulation/Distribution (A/D) Index (direction) — Provides a volume-weighted confirmation of the primary asset's direction to ensure the mean-reversion trade isn't fighting a significant accumulation/distribution trend.
- AI Pair Trading System v1.0 (entry) — Calculates the statistical deviation of the asset spread using a Kalman Filter; provides the core mean-reversion trigger when the spread reaches an extreme.
- Jurik Adaptive Envelope Bands (exit) — Uses noise-filtered adaptive channels to set dynamic profit targets that adjust to changing volatility, reducing lag compared to standard Bollinger Bands.
- ATR Stop Loss Finder (risk) — Projects a volatility-adjusted floor/ceiling to protect against tail risk in the spread's divergence.
Known failure conditions
- The Kalman Filter 'Gain' becomes too high, indicating the two assets in the pair have fundamentally decoupled.
- Efficiency Ratio remains consistently above 0.60 for extended periods, indicating a permanent shift to a trending regime.
- A/D Index moves inversely to price for >10 bars during an entry signal, suggesting a 'wash trade' or volume anomaly.
Explore the full interactive blueprint, parameter ranges and evidence on WOBR StrategyVerse, or generate this strategy as an MT4/MT5 Expert Advisor with QuantMogul AI Engine.