Z-Lag Momentum VWAP Reversion

Family: hybrid · Regime: trending · Complexity: medium · Asset classes: FX, Equities (Intraday), Crypto · Timeframes: M15, H1

Thesis

Market participants create momentum 'bursts' that temporarily push price away from the daily volume-weighted average (VWAP). By using a zero-lag trend filter (ZLSMA) and momentum confirmation (CCI/MACD), we can identify high-probability entries into these bursts, capturing the move back toward or through the VWAP 'fair value' equilibrium before volatility subsides. The edge exists because price often overextends based on short-term sentiment before returning to the day's institutional average price.

Components

• Zero Lag Least Squares Moving Average (ZLSMA) (regime) — Provides the primary trend filter. By using zero-lag logic, it reduces the entry delay common in SMA/EMA filters, ensuring we stay on the right side of the immediate trend.
• Commodity Channel Index (Rosasurfer Framework) (direction) — Acting as the directional bias, the CCI ensures momentum has reached a threshold (+/- 100) indicating a strong directional impulse rather than noise.
• MACD Demo Implementation (entry) — Serves as the precise trigger. The MACD crossover provides a specific point in time to enter once the higher-level regime and momentum filters are satisfied.
• Daily Volume-Weighted Average Price (VWAP) (exit) — The VWAP represents the 'fair value' for the session. Reaching VWAP from the outside often acts as a magnet/target, making it a logical exit point for intraday momentum.
• ATR SL Finder (risk) — Provides a volatility-adjusted stop loss that accounts for the current market noise, preventing premature exits during minor retracements.
• Average True Range (NNFX) (volatility_filter) — Filters out trades during low-volatility 'dead' periods where momentum indicators are prone to false signals and spreads eat profits.

Known failure conditions

• Price remains in a persistent tight range (< 1 ATR daily range) for more than 3 sessions.
• ZLSMA slope remains flat while MACD/CCI provide frequent opposing signals.
• VWAP exits are triggered immediately after entry due to low distance between entry price and daily average.

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