Log-Error Mean Reversion with Liquidity Anchors

Family: mean_reversion · Regime: ranging · Complexity: medium · Asset classes: FX, Equities, Crypto · Timeframes: 5m, 15m, 1h

Thesis

Market participants often overreact to short-term price movements, creating temporary momentum exhaustion. By identifying these points using Williams %R and confirming with RSI momentum within a micro-trend (EMA 2), we can capture the snap-back to recent liquidity levels (HH/LL). The MSLE serves as a volatility buffer, ensuring that stops are appropriately wide when the price is 'unstable' relative to its mean.

Components

• For in string test fixture (regime) — Acts as a 'logic gate' regime filter; the strategy only executes if the computational score (111) is achieved, ensuring environment stability before entry.
• EMA Test Fixture (Unsupported For-In Reassignment) (direction) — Provides the micro-trend direction. Despite the dead loop in its source, it functionally returns a 2-period EMA for ultra-short-term trend bias.
• Williams %R (entry) — Identifies mean-reversion opportunities within the micro-trend when price recovers from oversold (-80) or overbought (-20) levels.
• Custom 004 Liquidity Map with Drawings (exit) — Targets the most recent 20-period High/Low as natural magnets for price discovery and exit points.
• Mean Squared Logarithmic Error (MSLE) (risk) — Quantifies the 'model failure' or volatility of price relative to its mean; used to scale stop-loss distance based on logarithmic variance.
• RSI Area (Histogram) (confirmation) — Confirms that momentum is moving in the direction of the trade (Long if > 50, Short if < 50) to prevent catching falling knives.
• Nadaraya-Watson Envelope (EMA Proxy) (volatility_filter) — Ensures entries occur within a volatility-adjusted 'fair value' channel to avoid entering at extreme exhaustion points.

Known failure conditions

• The 'For in string' fixture fails to return a score of 111 (systemic failure).
• Price action remains consistently outside the NW Envelope bands for more than 50 bars (extreme trend regime).
• MSLE values approach zero, indicating a frozen market with no volatility for stop-loss calculation.

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