VHF Confluence Efficiency Trend

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

Thesis

Market trends are most tradable when price movement is 'efficient' (high VHF) and supported by institutional volume (III). By requiring a 10-layer confluence (IAE) and aligning with a baseline mean (SMA), the strategy enters only when directional momentum is at its peak. Exits are triggered by momentum exhaustion (MACD Cloud) rather than waiting for a full trend reversal, protecting capital from the 'dead cat bounce' or deep pullbacks common in late-stage trends.

Components

• Vertical Horizontal Filter (VHF) (regime) — Acts as the primary regime filter to ensure the strategy only engages when the market demonstrates sufficient directional energy (trending) rather than noise.
• Simple Moving Average (SMA) (direction) — Establishes the long-term directional bias; price must be on the 'correct' side of the mean to avoid counter-trend traps.
• IAE — Technical Confluence Score (entry) — Aggregates 10 layers of market data to ensure entries occur at high-probability 'confluence' points rather than single-indicator noise.
• MACD & OSMA Cloud Hybrid (exit) — Monitors momentum decay; exits occur when the momentum 'cloud' or histogram shows signs of exhaustion (falling green for longs).
• Extrem SuperTrend (risk) — Provides an ATR-based dynamic volatility floor/ceiling for stop losses and initial risk calculation.
• Intraday Intensity Index (III) (confirmation) — Validates the entry by confirming that institutional volume flow (position within the bar) supports the price movement.

Known failure conditions

• VHF stays below 0.35 for extended periods, leading to 'death by a thousand cuts' in choppy markets.
• IAE score generates high frequency signals during periods of low institutional volume (low III).
• MACD/OsMA Cloud exits trigger consistently before the Extrem SuperTrend is hit, indicating the exit is too sensitive for the trend strength.

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