Wavelet LVN Mean Reversion System

Family: mean_reversion · Regime: ranging · Complexity: high · Asset classes: FX, Equities, Crypto · Timeframes: 15m, 1h, 4h

Thesis

Price action tends to stall and reverse at 'Low Volume Nodes' (LVNs) because these zones represent a lack of conviction/liquidity. When an LVN coincides with a linear regression channel boundary and a cycle exhaustion (Fisher/Stochastic), the probability of a mean-reversion move increases. By using a Wavelet Transform to filter high-frequency noise, the strategy identifies the true cyclical turn while ignoring minor volatility.

Components

• Dynamic Supply and Demand Zones [AlgoAlpha] (regime) — Defines the tradeable regime by identifying Low Volume Nodes (LVN) where price discovery is thin, suggesting high-probability reversal zones.
• Fisher-based Scalping Indicator (direction) — Provides the cyclical momentum bias to ensure entries align with a local exhaustion point and subsequent reversal.
• Stochastic Oscillator (entry) — Acts as the tactical trigger, identifying the precise moment price bounces from the structural zone.
• Chandelier Exit (exit) — Provides a volatility-adjusted trailing stop to lock in gains and minimize downside during trend failures.
• w8-hold-size-renamed-control-v6-v1 (risk) — Serves as a logic gate and scaling constant (Value=1) for the position sizing algorithm.
• Ghost Channels [mph1nance] (confirmation) — Validates the price exhaustion against a linear regression boundary and provides an urgency score for market participation.
• Discrete Wavelet Transform (DWT) (volatility_filter) — Filters out high-frequency market noise, requiring a positive shift in the detail coefficient to confirm the start of a new local cycle.

Known failure conditions

• Price 'drifts' through LVNs on low volatility without triggering the Stochastic trigger, followed by a sudden spike.
• Ghost Channel R2 falls below 0.3, indicating the market is no longer respecting linear structures.
• Fisher indicator remains flat for extended periods during high-volatility spikes.

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