LR-RAM: Linear Regression Risk-Adjusted Momentum
Family: trend_following · Regime: trending · Complexity: medium · Asset classes: FX, Equities, Crypto · Timeframes: 15m, 30m, 1H
Thesis
Market trends exhibit inertia; when a long-term trend (DEMA 200) is confirmed by rising directional strength (ADX) and low price dispersion (STDERR), a directional crossover signal (ADX Crossing) marks a high-probability continuation rather than a temporary spike. By sizing positions inversely to regression error, we prioritize trades where the trend is most 'orderly'.
Components
- DEMA 200 & ADX Combined HUD (regime) — Serves as the primary trend filter, ensuring trades only occur in the direction of the long-term trend (DEMA) and that sufficient volatility/momentum is present (ADX).
- RSIOMA (RSI of Moving Average) (direction) — Provides intermediate momentum confirmation. By smoothing price through an MA before calculating RSI, it filters out noise and ensures the entry aligns with a mid-term momentum shift.
- ADX Crossing INGM (entry) — Identifies the specific micro-level trigger where positive or negative directional pressure overcomes its opposite, initiating the entry signal.
- SuperTrend (exit) — Used as a trailing stop-and-reverse mechanism to lock in profits during trending moves and exit when the trend structure breaks.
- Standard Error of Regression (STDERR) (risk) — Quantifies price dispersion. It is used to set a volatility-adjusted stop loss and calibrate position size; higher dispersion suggests higher risk per unit of price.
Known failure conditions
- Price enters a low-volatility 'sawtooth' pattern where ADX hovers around 20, triggering frequent regime flips.
- STDERR values spike to extreme levels due to black-swan gaps, causing the position size to drop to zero or stop-losses to become too wide for meaningful R:R.
- The ADX Crossing repainting leads to 'phantom' historical entries that cannot be replicated in live trading.
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