Log-Error Momentum Trend-Sighter

Family: trend_following · Regime: trending · Complexity: medium · Asset classes: FX, Equities, Indices · Timeframes: H1, H4, D1

Thesis

Market momentum exhibits 'volatility clustering' and 'trend persistence.' By using Heiken Ashi to smooth noise and CCI to identify momentum surges, we can capture the meat of a trend. The use of MSLE as a risk measure assumes that when 'logarithmic error' increases, the reliability of current price levels decreases, necessitating smaller position sizes to protect against mean reversion.

Components

• Exponential Moving Average (EMA) (regime) — Provides a global trend filter to ensure trades are only taken in the direction of the long-term institutional bias.
• Chandelier Exit Heiken Ashi Variant (direction) — Filters out noise via HA smoothing to determine local swing direction and volatility-adjusted momentum.
• Commodity Channel Index (Rosasurfer Framework) (entry) — Identifies high-momentum breakout points and trend-resumption signals through the +/- 100 level crosses.
• SuperTrend (exit) — Acts as a trailing stop-loss and trend termination signal once the volatility-adjusted trend flips.
• Mean Squared Logarithmic Error (MSLE) (risk) — Determines trade sizing and initial stop distance based on the relative variance (error) of price from its mean; higher MSLE implies higher uncertainty/volatility.

Known failure conditions

• Maximum drawdown exceeding 2x the standard deviation of historical volatility in the asset.
• Persistence of MSLE at extreme high levels for >30 bars, suggesting a regime shift where technical indicators lose predictive power.
• Consecutive failures of the CCI to lead price movement in trending environments (momentum decay).

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