MESA-VWAP Structural Breakout Alpha

Family: breakout · Regime: trending · Complexity: medium · Asset classes: EUR/USD Forex · Timeframes: H1

Thesis

Price breakouts from daily structural levels (DHL) are most reliable when external implied volatility (EVZ) is in a 'normal' range and intraday cycles (MSTOCH) have cooled. By scaling risk based on the predictability of current price action (RAE), we can maximize exposure during high-confidence trends and minimize it during erratic noise.

Components

• Daily High Low (regime) — Defines the range-expansion regime; longs are only permitted when the price breaks above the previous day's structural high.
• Momentum (direction) — Ensures the breakout has sufficient raw velocity to sustain a trend beyond the structural level.
• Ehlers MESA Stochastic (MSTOCH) (entry) — Identifies the optimal cyclical entry point after a breakout, filtering out noise via the SuperSmoother.
• Daily Volume-Weighted Average Price (VWAP) (exit) — Acts as a dynamic intraday mean; price returning to VWAP suggests the trend-burst has exhausted its volume-weighted premium.
• Relative Absolute Error (RAE) (risk) — Quantifies the 'predictability' of price action; high error relative to the mean suggests unstable volatility, used to scale down risk.
• Bears Power (confirmation) — Confirms that despite the breakout, selling pressure (bears) is losing strength (Bears Power rising) before committing to a long.
• Euro FX VIX (EVZ) Data Loader (volatility_filter) — Filters out trades during periods of extreme external market stress or total stagnation as measured by EUR/USD implied volatility.

Known failure conditions

• EVZ data remains stagnant or missing for extended periods, neutralizing the volatility filter.
• The strategy enters a high-frequency whipsaw if the instrument trades in a 'tight' Daily range with frequent DHL level breaches.
• RAE remains consistently near zero, leading to oversized positions in low-liquidity environments.

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