RLS-Adaptive Liquidity Sweep Expansion
Family: hybrid · Regime: trending · Complexity: high · Asset classes: FX Major Pairs (EURUSD, GBPUSD), Equity Indices (US30, NAS100) · Timeframes: M5, M15
Thesis
The hypothesis is that significant price trends are preceded by a 'liquidity sweep' (Daily Sweep) where institutions trigger retail stops before price moves in the intended direction. By using an adaptive Recursive Least Squares (RLS) filter to confirm the new trend and a MACD 'discount' trigger to enter after the initial impulse, we capture the meat of the NY session expansion. Volume Profile nodes act as structural floors (POC) for risk, as price is unlikely to return through high-volume defense zones if the sweep was genuine.
Components
- Recursive Least Squares Adaptive Filter (RLS) (regime) — Acts as the primary trend filter; only taking trades when price is on the correct side of the adaptive mean to ensure high-fidelity trend alignment.
- The Daily Sweep (direction) — Identifies structural liquidity grabs and FVG alignment, ensuring we enter during institutional expansion phases in the NY session.
- MACD signal turn (entry) — Provides the precise momentum trigger by identifying crosses on the 'discounted' side of the zero-line (bullish below zero), suggesting a mean-reversion move into the expansion.
- Commodity Channel Index (Rosasurfer Framework) (exit) — Uses the +/- 100 level crosses to identify when momentum has peaked or the trend has exhausted.
- Volume Profile + Pivot Levels [ChartPrime] (risk) — Defines stop-loss levels based on high-volume nodes (POC) and supply/demand zones (Pivots) which act as structural defense lines.
- Average Volume (AV) (volatility_filter) — Filters out low-liquidity environments by ensuring current tick volume is above its EMA, confirming participation in the sweep.
Known failure conditions
- RLS forgetting factor instability causing filter oscillation around price.
- Volume Profile POC shifting rapidly during high-volatility news events, leading to tight stops.
- Consecutive days of sideways price action where MACD triggers repeatedly around zero despite RLS filtering.
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