Alligator-REI Momentum Impulse Strategy

Family: trend_following · Regime: trending · Complexity: high · Asset classes: FX, Equities, Crypto · Timeframes: H1, H4, D1

Thesis

Market trends exhibit 'momentum clusters' where volume and price velocity align during impulsive Elliott Waves (3 and 5). By using Heiken Ashi to filter noise and the Range Expansion Index to identify high-velocity momentum, we can enter the strongest part of a trend. The Elliott Wave pivots provide objective structural support for risk, while the MACDO captures the 'momentum of the momentum' to exit before the trend officially breaks, protecting unrealized gains.

Components

• Heiken Ashi (regime) — Acts as the primary trend filter; prevents entry during minor counter-trend retracements by smoothing the noise of standard OHLC candles.
• Bill Williams Alligator (direction) — Ensures the market is in an active trending state (alligator 'eating') rather than consolidation ('sleeping').
• Range Expansion Index (REI) (entry) — Provides the momentum trigger; filters out noise in non-trending markets by only signaling when price velocity is significant.
• Moving Average Convergence/Divergence Oscillation (MACDO) (exit) — Captures the exhaustion of momentum within the MACD histogram to trigger early exits before a full trend reversal.
• Elliott Wave [LuxAlgo] (risk) — Uses detected motive wave structures (pivots) to identify logical structural stop-loss levels (e.g., Wave 4 low).
• Price and Volume Trend (PVT) (confirmation) — Confirms that price movement is supported by tick/volume activity, ensuring the trend has 'weight'.
• Root Mean Squared Error (RMSE) (volatility_filter) — Acts as a volatility gate; prevents entries during extreme outliers or high-volatility chaos that violates EMA-based assumptions.

Known failure conditions

• Failure to detect valid Elliott Wave pivots for 100+ bars, rendering risk management impossible.
• Persistent sideways market where Alligator lines entwine for extended periods, generating high transaction costs.
• REI fails to exceed the zero line despite significant price movement, indicating the volatility filter is too restrictive.

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