Velocity-Filtered Darvas Breakout (VFDB)

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

Thesis

Market 'noise' often triggers false Darvas Box breakouts; by requiring positive price velocity (REI) and non-exhausted momentum (RSI) at the moment of breakout, we isolate high-probability structural shifts and use MACD's lagging nature to stay in the trend until momentum truly rolls over.

Components

• Range Expansion Index (REI) (regime) — Acts as a 'velocity filter' to ensure Darvas breakouts are backed by genuine price expansion rather than noisy sideways churn.
• Darvas Boxes Modern/Classic (direction) — Identifies structural price ceilings and floors; the breakout of these boxes provides the directional bias for the trade.
• Relative Strength Index (RSI) (entry) — Ensures the entry is made during a period of healthy momentum (RSI > 50) but prevents 'buying the top' by filtering out overbought conditions (RSI > 70).
• Moving Average Convergence Divergence (MACD) (exit) — Captures the exhaustion of the trend; used to exit the position when the momentum differential turns against the trade.
• FakeCandle (risk) — Provides a volatility-adjusted price framework (NNFX style) to determine the structural Stop Loss based on the 'Fake' candle's range.

Known failure conditions

• Price spends more than 10 bars in a tight range after a Darvas breakout without hitting SL or TP.
• REI remains at zero (neutral) for extended periods while price trends, indicating the velocity filter is too restrictive for the specific asset volatility.

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