Detrended Schaff Cycle Convergence

Family: hybrid · Regime: trending · Complexity: medium · Asset classes: Equities, Forex, Crypto · Timeframes: H1, H4, D1

Thesis

Market price action is composed of overlapping cycles of different frequencies. By using the DPO to isolate short-term cycles and the STC to filter for medium-term momentum shifts, one can identify high-probability entry points where short-term exhaustion (Williams %R) aligns with the primary trend (SMA 200). The edge relies on the recursive smoothing of the STC to filter noise that typically causes standard oscillators to fail.

Components

• Detrended Price Oscillator (DPO) (regime) — Used as a regime filter to ensure trades are taken when the short-term cycle is constructive (positive for longs, negative for shorts).
• Schaff Trend Cycle (STC) (direction) — Identifies the directional momentum cycle; entries are only permitted when the STC is trending in the trade direction to avoid catching falling knives.
• Williams %R (entry) — Provides the execution trigger by identifying price recovery from oversold (long) or overbought (short) levels.
• AI - RSI Strategy (exit) — Provides the exit logic based on RSI exhaustion and the SMA 200 as a primary trend filter.
• ATR Heiken Ashi (risk) — Calculates volatility using smoothed price data to set stop-loss distances and determine position sizing.

Known failure conditions

• STC remains pinned at 0 or 100 for extended periods, rendering directional filtering useless.
• Price oscillates across the SMA 200 frequently (choppy market), causing multiple filter-related whipsaws.
• ATR Heiken Ashi volatility collapses to near-zero, leading to overly tight stop-losses that get hit by spread alone.

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