VHF Gap-Box Momentum Impulse

Family: breakout · Regime: trending · Complexity: medium · Asset classes: FX Major Pairs, Equity Indices (US500, GER40) · Timeframes: H1, H4

Thesis

Market inefficiency exists when price 'jumps' (gaps) out of a consolidation box in a trending regime. This suggests that participants are adjusting to new information faster than the order book can absorb, creating an impulse. By filtering for overextension (Stochastic/VR) and ensuring a trending bias (VHF), we capture the high-probability meat of the move.

Components

• Vertical Horizontal Filter (VHF) (regime) — Filters out 'choppy' sideways markets where gapping is likely noise; ensures the strategy only operates when the market is attempting to trend.
• MindTheGap (direction) — Acts as the primary directional trigger, identifying sudden shifts in supply/demand balance.
• Stochastic Oscillator (entry) — Ensures we enter on a momentum 'reset' or early impulse rather than chasing an already overbought/oversold parabolic move.
• Average True Range (ATR) (exit) — Provides a dynamic exit threshold that scales with market volatility to avoid being stopped out by normal noise.
• Volatility Ratio (VR) (risk) — Acts as a risk management gate; if the entry candle's range is too large relative to ATR (VR > 2.0), the signal is discarded as 'exhaustion' rather than 'initiation'.
• Boxline (Consolidation Zones) (volatility_filter) — Filters the Gap signal by requiring a breakout of a consolidated price zone, confirming the gap has structural significance.

Known failure conditions

• VHF remains below 0.30 for extended periods, leading to no signals in ranging markets.
• MindTheGap generates frequent small signals in low-liquidity environments (e.g., Asian session FX).
• Price repeatedly breaks Boxline levels only to reverse (false breakouts).

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