Harmonic GARCH Mean Reversion System

Family: mean_reversion · Regime: ranging · Complexity: high · Asset classes: Equities, Forex, Crypto · Timeframes: 1H, 4H, 1D

Thesis

Markets tend to revert to a moving average mean when price structure reaches geometric completion (Harmonics) and simultaneously exceeds statistical volatility boundaries (NW/Keltner). By scaling risk based on the GARCH-predicted volatility environment (Conditional Volatility), the strategy avoids over-exposure during the 'volatility clustering' phase of a trend breakout, effectively capturing the shift from impulsive to corrective phases.

Components

• Unsupported Map Template (regime) — Used for internal state management to track 'Regime ID' (e.g., count of consecutive bars outside NW Envelopes) to avoid over-trading in trending conditions.
• Nadaraya-Watson Envelope (EMA Proxy) (direction) — Defines the mean-reversion target (Baseline) and the volatility extremes (Upper/Lower) where price is considered overextended.
• Custom Pattern Detection (Harmonic Designer) (entry) — Identifies structural price exhaustion through Fibonacci-based geometry; acts as the primary trigger for mean-reversion entries.
• ATR Stop Loss Finder (exit) — Provides a volatility-adjusted invalidation level beyond the recent swing high/low.
• Conditional Volatility (CV) (risk) — Utilizes GARCH(1,1) to scale position size; when clustering volatility is high, exposure is reduced to maintain a constant risk budget.
• Bears Power (confirmation) — Confirms the exhaustion of selling pressure (for longs) or the surge of selling pressure (for shorts) relative to the EMA.
• Keltner Channels (volatility_filter) — Filters for 'squeeze' or 'breakout' regimes; requires price to be outside the bands to ensure sufficient volatility for a mean-reversion move.

Known failure conditions

• Price persistently rides the NW Envelope bands (band-walking) for more than 20 bars without touching the baseline.
• GARCH(1,1) (CV) fails to converge, indicating non-stationary volatility that renders ATR-based stops unreliable.
• Market exhibits 'gap-and-run' behavior where Harmonic patterns are invalidated immediately by high-volume breakouts.

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