MESA-GARCH Confluence Hybrid

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

Thesis

The strategy hypothesizes that market trends are most tradeable when cyclical oscillators (Ehlers MSTOCH) and volume-weighted momentum (CMF/ASH) align with a low-lag trend regime. By normalizing risk using Conditional Volatility (GARCH), the system accounts for the 'volatility smile' and clustering effect, theoretically reducing drawdowns during high-uncertainty periods while staying in 'clean' trends through a multi-factor exit engine.

Components

• Dynamic EMA with Box Method Selector (regime) — Acts as a high-sensitivity regime filter, ensuring current price action maintains immediate directional momentum relative to a micro-trend baseline.
• Ehlers MESA Stochastic (MSTOCH) (direction) — Provides a noise-filtered, non-lagging cyclical oscillator to identify the phase of the market cycle without the bias of secular trends.
• Absolute Strength Histogram (ASH) (entry) — Triggers the entry when the relative strength between bulls and bears expands beyond the smoothing threshold, capturing the start of a momentum burst.
• IAE — Technical Confluence Score (exit) — Aggregates 10 distinct technical layers to provide a holistic 'health' score for the trade, allowing for exits based on broad market structure deterioration rather than single-indicator failure.
• Conditional Volatility (CV) (risk) — Utilizes GARCH(1,1) to forecast volatility clustering, allowing position sizes to contract during high-risk regimes and providing a mathematically sound stop-loss buffer based on conditional variance.
• Chaikin Money Flow (NNFX Version) (confirmation) — Confirms that price movement is supported by actual buying/selling pressure (accumulation/distribution), filtering out low-liquidity spikes.

Known failure conditions

• Prolonged low-volatility environments where GARCH(1,1) (CV) estimates collapse, leading to oversized positions on 'fakeout' breakouts.
• Asset classes with extreme price gaps (e.g., small-cap stocks) which distort the Chaikin Money Flow multiplier.
• Markets where the IAE Technical Confluence Score stays perpetually neutral (40-60) due to lack of sector correlation or breadth data.

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