Wavelet-MdAE Imbalance Expansion Strategy
Family: hybrid · Regime: trending · Complexity: high · Asset classes: Equities, Forex, Indices · Timeframes: H1, M15
Thesis
Market momentum is most tradable when structural imbalances (FVGs) align with institutional value (VWAP) in an environment of low forecast error (MdAE). By using Discrete Wavelet Transform to isolate the trend cycle from noise, we can filter the noisy signals of the UT Bot to capture high-conviction expansions. The edge exists because price often returns to institutional value before a coordinated move into an imbalance.
Components
- Discrete Wavelet Transform (DWT) (regime) — Used as a regime filter to ensure the current multi-scale 'detail' (cycle) is aligned with the desired trade direction, filtering out high-frequency noise.
- Simple Moving Average (SMA) (direction) — Provides the primary trend orientation; trades are only taken in the direction of the SMA slope and price position relative to it.
- VWAP (entry) — Serves as the 'value' anchor. Entries require price to be expanding away from VWAP to capture momentum or returning to it for mean reversion.
- UT Bot Alerts (MQL5) (exit) — Acts as the tactical trigger and trailing stop. It synthesizes price action and volatility into a binary signal.
- Price Line and Visible Range High-Low (risk) — Provides structural 'outer bounds' for stop loss placement based on the visible chart window's extremes.
- Fair Value Gap (FVG) Indicator (confirmation) — Confirms the presence of institutional imbalance (liquidity gaps). Entry is only valid if a recent FVG suggests momentum conviction.
- Median Absolute Error (volatility_filter) — Filters out periods of high forecast error (erratic volatility). Low MdAE suggests a stable, predictable price environment.
Known failure conditions
- Price oscillating around the SMA 50 in a tight range (chop).
- UT Bot trailing stop distance exceeds the Visible Range High-Low bounds.
- Consecutive FVG mitigations without price expansion.
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