MdAE-Filtered Cyclical Momentum

Family: trend_following · Regime: trending · Complexity: medium · Asset classes: Equities, FX, Crypto · Timeframes: H1, H4

Thesis

Market trends are most tradable when short-term cycles align with long-term momentum, but only if the trend displays 'low error' (stable volatility). By using MdAE to filter for periods where price action follows a predictable median path and DPO to time the entry after a cycle dip, we can enter trends with higher structural integrity. Exiting via Heikin-Ashi allows the strategy to ignore minor noise while capturing the majority of the smoothed trend move.

Components

• Average Directional Index (regime) — Filters for trending regimes (ADX > 25) to ensure momentum and cycle indicators have sufficient directional backing.
• Rate of Change (ROC) (direction) — Determines the primary bias (Time-Series Momentum) to align trades with the 12-period directional velocity.
• Detrended Price Oscillator (DPO) (entry) — Used to identify the conclusion of a counter-trend cycle. Entry occurs when the cycle-removed price crosses back in alignment with the ROC.
• Heikin-Ashi Candles (exit) — Provides a smoothed trend-following exit; trades are closed upon the first candle color change to minimize noise-induced early exits.
• Legacy Trading Connector (OptionX) (risk) — Manages execution and risk through fixed expiration cycles and payout-based position sizing, mimicking binary-risk structures for high-velocity momentum.
• Median Absolute Error (volatility_filter) — Acts as a volatility quality filter. If MdAE is high, it indicates price action is erratic (high forecast error between open and close), signaling a breakdown in trend stability.

Known failure conditions

• ADX remains below 20 for extended periods (persistent ranging market).
• The MdAE value consistently exceeds the 50-period average MdAE, suggesting high-noise regimes.
• The HA candles flip color frequently (every 1-2 bars), indicating high-frequency mean reversion.

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