GARCH-Ichimoku Structural Trend Strategy
Family: trend_following · Regime: trending · Complexity: high · Asset classes: FX, Equities, Crypto · Timeframes: H1, H4, D1
Thesis
Market trends are most exploitable when volatility is clustered and stable (calculated via GARCH), as opposed to erratic or dying. By using Ichimoku to define the 'equilibrium zone' and ADX for momentum timing, we enter trades only when the trend has confirmed structural strength. Using local pivot reversals for risk ensures that the stop loss is placed behind recent price rejection, providing a logical invalidation point rather than a mathematical guess.
Components
- Conditional Volatility (CV) (regime) — Filters out periods of extreme 'volatility explosions' where trend following fails, and ensures sufficient market activity (volatility clustering) exists for trend persistence.
- Ichimoku Kinko Hyo (direction) — Establishes the macro-trend direction; trades are only taken in the direction of the price relative to the Kumo (Cloud) to ensure equilibrium is broken.
- ADX Crossing INGM (entry) — Provides the micro-entry trigger based on directional movement crossovers, signifying a shift in momentum.
- HiLo Activator (Pandini Version) (exit) — Acts as a dynamic trailing stop that accounts for recent price action highs/lows, capturing the meat of a trend and exiting on reversal.
- Pivot Points Reversal Levels (risk) — Uses recent structural price rejections (2-bar pivots) to set hard stop-loss levels and calculate position sizing based on local market structure.
Known failure conditions
- GARCH parameters Alpha + Beta >= 1 (non-stationary volatility process).
- Market remains in a 'Chop' regime where ADX +DI/-DI cross frequently without price moving away from the Ichimoku Kumo.
- The Pivot Point Buy/Sell lines are breached immediately after entry, indicating high-frequency noise rather than structural support.
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