Wavelet-Cointegration Breakout Engine

Family: breakout · Regime: trending · Complexity: high · Asset classes: FX Major Pairs, Gold (XAUUSD), US Equities (with SPY benchmark) · Timeframes: H1, H4

Thesis

Price breakouts of previous daily ranges are more likely to result in sustained trends when: 1) The macro US Dollar regime provides a tailwind (USDX), 2) High-frequency noise is removed through wavelet decomposition (DWT), and 3) The asset's relationship with a market benchmark (SPY) is statistically verified via cointegration, ensuring the move is part of a broader market shift rather than an idiosyncratic anomaly.

Components

• USDX (US Dollar Index) Tracker (regime) — Establishes the macro liquidity environment. USD strength/weakness dictates the trend directionality of most major asset classes.
• Discrete Wavelet Transform (DWT) (direction) — Filters high-frequency market noise to extract a smoothed 'Haar trend' that is more robust than a simple moving average.
• Daily High Low (entry) — Provides structural breakout triggers based on the previous day's liquidity extremes.
• ATR Fib (exit) — Projects price targets based on a fixed volatility range relative to the session start, used for tiered profit taking.
• FakeCandle (risk) — Standardizes visual price structure for stop-loss placement based on the NNFX risk framework (typically 1.5x ATR).
• Cointegration (COINTEGRATION) (confirmation) — Ensures the asset is not drifting idiosyncratically; trades are only taken when the asset maintains a statistical relationship with a benchmark.
• Bollinger Bands (volatility_filter) — Acts as a volatility expansion filter; price must be on the 'correct' side of the mean to confirm momentum.

Known failure conditions

• USDX constituent pairs missing from Market Watch (index calculation failure).
• Cointegration ADF statistic remains above -1.0 for extended periods, indicating a breakdown in asset relationships.
• Low volatility periods where Bollinger Bandwidth is narrower than the average spread.

Explore the full interactive blueprint with parameter ranges and evidence on WOBR StrategyVerse, or generate this strategy as an MT4/MT5 Expert Advisor with QuantMogul AI Engine (free download).