Wavelet-OR Fractal Reversal Strategy

Family: trend_following · Regime: trending · Complexity: high · Asset classes: FX (Majors), Equity Indices (NQ/ES), Gold (XAUUSD) · Timeframes: M5, M15

Thesis

Intraday trends are most robust when the price escapes the opening session's equilibrium (Opening Range) in alignment with a decomposed low-frequency price component (DWT). By using a multi-resolution regime filter (DWT) to exclude noise and Jurik's adaptive volatility bands for exits, the strategy targets high-momentum expansions confirmed by double-smoothed oscillators while anchoring risk to structural fractals.

Components

• Discrete Wavelet Transform (DWT) (regime) — Acts as the macro regime filter by isolating the 'smoothed' trend component (Level 4 approximation) from high-frequency market noise.
• Traders Dynamic Index (TDI) (direction) — Confirms medium-term sentiment and momentum by requiring the RSI line to be above the Market Base Line and Signal line.
• Pivot Points Reversal Levels (entry) — Provides the specific trigger via a breach of a recently established 2-bar price reversal level.
• Jurik Adaptive Envelope Bands (exit) — Provides an adaptive volatility-sensitive exit target that expands during high-momentum moves.
• Support and Resistance (Fractal-based) (risk) — Used for hard stop-loss placement based on 5-bar price extremes (Williams Fractals).
• TSI Convergence Divergence (TSI_CD) (confirmation) — Secondary momentum filter to ensure entry occurs while momentum is expanding (histogram alignment).
• Trepidity Opening Range with Extensions (volatility_filter) — Filters out low-volatility 'chop' by requiring price to be trading outside the opening range mid-point.

Known failure conditions

• Persistent sideways consolidation where DWT level 4 approximation flattens and Jurik Envelopes contract.
• Market gap-downs through the Fractal support levels during overnight sessions.
• Loss of correlation between TSI momentum and TDI sentiment, indicating divergent price behavior.

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