GARCH-Stabilized Structural Momentum
Family: hybrid · Regime: trending · Complexity: high · Asset classes: Equities, Forex, Crypto · Timeframes: 1H, 4H, 1D
Thesis
Market trends are most efficiently exploited when momentum (MACD) aligns with established structural shifts (ZigZag) and risk is normalized using the clustering nature of volatility (GARCH). By using a structural regime filter that ignores the current repainting leg, we trade only in the direction of 'proven' momentum, while the GARCH model prevents over-leveraging during high-variance periods where stops are more likely to be hit by noise.
Components
- ZigZag (regime) — Defines the high-level market structure. Longs are only permitted if the last confirmed (non-repainting) pivot was a swing low.
- Supported plot Input Show Last (direction) — Acts as a recency filter; ensures that signals are only processed if the market structure analysis has been updated within the 'Show Last' lookback window.
- MACD (entry) — Provides the specific entry trigger based on momentum crossovers once structural and volatility conditions are met.
- Chandelier Exit (exit) — Provides a dynamic trailing stop-loss that adjusts based on ATR, allowing the trade to breathe during volatility expansion.
- Conditional Volatility (CV) (risk) — Uses a GARCH(1,1) model to estimate current market risk. Position size is inversely proportional to the CV value to maintain a constant risk-of-ruin.
- Linefill All Visualizer (volatility_filter) — Used as a volatility band filter. Entries are only valid if price is within the visual channel created by the last established range to avoid 'buying the top' of an exhaustion move.
Known failure conditions
- ZigZag confirmed pivots alternate rapidly (choppy market), causing the regime filter to flip-flop constantly.
- Conditional Volatility (CV) stays consistently high, resulting in position sizes too small to overcome transaction costs.
- Price action consistently gaps over the Chandelier Exit levels, leading to slippage significantly higher than the ATR-based stop.
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