Gaussian-Fractal Conviction Breakout
Family: breakout · Regime: trending · Complexity: medium · Asset classes: FX, Equities, Crypto · Timeframes: H1, H4, D1
Thesis
Breakouts of horizontal market structure (Fractals) are only sustainable if they are characterized by 'high conviction'—defined here as high volume relative to price movement—and align with the low-lag Gaussian trend (ALMA). By using the Ehlers Center of Gravity to identify cycle exhaustion, the strategy exits before the inevitable mean reversion to the Nadaraya-Watson volatility baseline occurs.
Components
- Arnaud Legoux Moving Average (ALMA) (regime) — Provides a low-lag, ultra-smooth trend filter to ensure entries align with the dominant Gaussian-weighted price direction.
- Bulls Power (Elder-ray) (direction) — Confirms that buyers (for longs) or sellers (for shorts) have sufficient strength relative to the EMA baseline to sustain a breakout.
- Support and Resistance (Fractal-based) (entry) — Identifies horizontal structural barriers; a breakout of these levels signifies a shift in market psychology.
- Ehlers Center of Gravity (CG) (exit) — Identifies the 'balance point' of the current price cycle to signal exit before the momentum exhausts and reverts.
- Nadaraya-Watson Envelope (EMA Proxy) (risk) — Provides volatility-adjusted boundaries for stop-loss placement and position sizing.
- Volume to Absolute Return Ratio (confirmation) — Distinguishes between high-conviction breakouts (high volume relative to price movement) and 'easy' moves that lack institutional participation.
Known failure conditions
- Price consistently oscillating around the ALMA, indicating a trendless 'choppy' regime.
- Volume to Absolute Return Ratio producing extreme spikes due to near-zero price changes (denominator risk).
- Fractal levels being breached and immediately reclaimed (fakeouts) more than 3 consecutive times.
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