USDX Intensity VWAP Convergence Strategy

Family: trend_following · Regime: trending · Complexity: medium · Asset classes: Forex (Major USD Pairs: EURUSD, GBPUSD, USDJPY, USDCAD) · Timeframes: H1, H4

Thesis

Currency pairs involving the USD are primarily driven by the 'Dollar Smile' and global USD liquidity cycles. By using the USDX (basket) to confirm a structural trend and the Trend Intensity Index (TII) to confirm momentum, we can identify high-conviction regimes. Daily VWAP provides a volume-confirmed entry point that filters out low-liquidity noise, while RAE adjusts risk based on the statistical 'cleanliness' of the price move relative to its mean.

Components

• Trend Intensity Index (TII) (regime) — Defines the trend regime; high/low values filter for environments where momentum is strong enough to overcome intraday noise.
• USDX (US Dollar Index) Tracker (direction) — Identifies the macro directional bias of the US Dollar. Trading major pairs in alignment with USDX momentum increases the probability of catching structural moves.
• Daily Volume-Weighted Average Price (VWAP) (entry) — Acts as the intraday 'fair value' anchor. Crossing VWAP in the direction of the macro trend signals an entry point where volume supports the move.
• Auto Fibonacci (exit) — Provides dynamic, price-derived targets (extensions) and trailing stops (retracement levels) based on recent swings.
• Relative Absolute Error (RAE) (risk) — Determines position sizing and stop distance. A high RAE suggests price is deviating significantly from its baseline 'error' profile, necessitating tighter risk or lower leverage.
• ATR Heiken Ashi (volatility_filter) — Ensures the strategy only enters when smoothed volatility is sufficient to reach Fibonacci targets, avoiding 'sawtooth' ranging markets.

Known failure conditions

• USDX components (e.g., EUR, JPY) move in high idiosyncratic variance, decoupling from the US Dollar Index.
• Prolonged low-volatility periods where price oscillates around VWAP without triggering ATR HA thresholds.
• TII remains pinned at extremes while price moves sideways, leading to momentum exhaustion without a reversal signal.

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