Wavelet-SMC Power Alignment Strategy

Family: trend_following · Regime: trending · Complexity: high · Asset classes: FX, Equities, Crypto · Timeframes: M15, H1

Thesis

Market participants' behavioral dominance (Total Power) aligned with multi-timeframe structural trends (TF Bias) creates a momentum edge that is best harvested when filtered through a noise-reduction wavelet (DWT) to avoid short-term price fluctuations.

Components

• Total Power Indicator (regime) — Establishes the dominant market regime by ensuring bull or bear dominance is statistically significant over a 45-period lookback.
• Discrete Wavelet Transform (DWT) (direction) — Acts as the primary directional filter by isolating the low-frequency trend component (c4) from high-frequency market noise.
• Plotshape Test Indicator (entry) — Used as a final runtime execution gate; requires price to exceed a hardcoded threshold (close > 2) to validate environment compatibility.
• Ichimoku Kinko Hyo (exit) — The Kijun-sen (Base Line) provides a dynamic structural level for trend exhaustion and exit.
• ATR Heiken Ashi (risk) — Provides a smoothed volatility-based stop loss that accounts for the trend-smoothing effect of Heiken Ashi candles.
• TF Bias Detector (SMC) (confirmation) — Provides multi-timeframe confirmation by ensuring H1 EMA-bias and H1 RSI momentum align with the local direction.
• Braid Filter (ATR Optimized) (volatility_filter) — Filters out low-volatility environments (squeeze) where DWT signals are prone to whipsaw.

Known failure conditions

• The TF Bias Detector repaints higher-timeframe data, leading to 'ghost' performance in backtests that vanishes in live trading.
• Market enters a 'micro-ranging' state where DWT lag and Ichimoku lag coincide, resulting in entries at the peak of cycles.
• Asset price falls below 2.0, causing the Entry Role component to permanently disable all signals.

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).