Wavelet-Cointegration Breakout Engine

Family: breakout · Regime: trending · Complexity: high · Asset classes: FX Major Pairs, Gold (XAUUSD), US Equities (with SPY benchmark) · Timeframes: H1, H4

Thesis

Price breakouts of previous daily ranges are more likely to result in sustained trends when: 1) The macro US Dollar regime provides a tailwind (USDX), 2) High-frequency noise is removed through wavelet decomposition (DWT), and 3) The asset's relationship with a market benchmark (SPY) is statistically verified via cointegration, ensuring the move is part of a broader market shift rather than an idiosyncratic anomaly.

Components

• USDX (US Dollar Index) Tracker (regime) — Establishes the macro liquidity environment. USD strength/weakness dictates the trend directionality of most major asset classes.
• Discrete Wavelet Transform (DWT) (direction) — Filters high-frequency market noise to extract a smoothed 'Haar trend' that is more robust than a simple moving average.
• Daily High Low (entry) — Provides structural breakout triggers based on the previous day's liquidity extremes.
• ATR Fib (exit) — Projects price targets based on a fixed volatility range relative to the session start, used for tiered profit taking.
• FakeCandle (risk) — Standardizes visual price structure for stop-loss placement based on the NNFX risk framework (typically 1.5x ATR).
• Cointegration (COINTEGRATION) (confirmation) — Ensures the asset is not drifting idiosyncratically; trades are only taken when the asset maintains a statistical relationship with a benchmark.
• Bollinger Bands (volatility_filter) — Acts as a volatility expansion filter; price must be on the 'correct' side of the mean to confirm momentum.

Known failure conditions

• USDX constituent pairs missing from Market Watch (index calculation failure).
• Cointegration ADF statistic remains above -1.0 for extended periods, indicating a breakdown in asset relationships.
• Low volatility periods where Bollinger Bandwidth is narrower than the average spread.

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