Latest revision as of 06:40, 6 January 2026

Multi_Timeframe Dynamic Trend (MTFDR)

PART 1: STRATEGY OVERVIEW

What Is This Strategy?

Multi_Timeframe Dynamic Trend(MTFDR) is a systematic intraday trading strategy that requires multiple analytical layers to align before taking a trade. Each layer must be present for a valid setup. Market behavior is probabilistic, not predictive. The goal is positioning with asymmetric probabilities, not prediction.

Layered Architecture (Top-Down)

┌─────────────────────────────────────────────────────────────┐
│                                                             │
│   LAYER 1: MULTI-TIMEFRAME ANALYSIS  - FOUNDATION LAYER    │
│   5 timeframes analyzed for trend alignment                 │ context
│   Daily → 4H → 1H → 15M → 5M                               │
│                                                             │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│   LAYER 2: MARKET STATE ANALYSIS                           │  ← regime/ market state conditions 
│   7 algorithms: Railroad, Creeper, Phase, BOS, etc.         │
│   Calculates penalties and bonuses                          │
│                                                             │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│   LAYER 3: SETUP QUALITY GRADING                           │  ←  set up scoring
│   5-factor weighted scoring → Assigns grade A+ to F         │
│                                                             │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│   LAYER 4: FILTERS (Trade/No_Trade)                        │
│   • Direction: MA21 slope must match trade direction        │Filters
│   • Grade: Only A+, A, B grades can trade                   │
│   • Hours: Block hours ]WIP]                               │
│                                                             │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│   LAYER 5: ENTRY TECHNIQUES                                │  ← Final trigger
│                                                             │
│                                                             │
└─────────────────────────────────────────────────────────────┘

PART 2: Core Concept (Why This Works)

The edge comes from requiring multiple independent confirmations before trading. Each layer filters out bad trades:

Layer	What It Filters Out
1. MTF Analysis	Counter-trend trades, choppy markets
2. Market State	Dangerous conditions (creeper moves, institutional fights)
3. Quality Grading	Scores the setup (used by hard filter)
4. Hard Filters	Wrong direction, low grades (C/D/F), blocked hours
5. Entry Technique	Chasing price far from value areas

The Math

If each layer has 70% accuracy independently:

Single layer: 70% edge
2 layers: 70% × 70% = 49% of trades pass, but higher quality
5 layers: Only the best setups survive all filters

Result: Fewer trades, but each trade has multiple confluences supporting it.

PART 3: LAYER 1 - MULTI-TIMEFRAME ANALYSIS (The Foundation)

THIS IS THE FOUNDATION - Everything else builds on top of MTF alignment. If timeframes disagree, we don't trade.

The 5 Timeframes

Timeframe	Role	Weight
Daily (1D)	Overall market bias	Highest
4-Hour (4H)	Primary trend direction	High
1-Hour (1H)	Trend confirmation	Medium
15-Minute (15M)	Entry timing context	Lower
5-Minute (5M)	Execution timeframe	Lowest

What We Analyze Per Timeframe

For each of 5 timeframes, our system calculates:

Analysis	Description
MA21 Value	21-period Moving Average
MA21 Slope	Rising/Flat/Declining
MA200 Value	200-period Moving Average
Price vs MA21	Above/Below/At the MA
Trend Direction	UP/DOWN/NEUTRAL

MTF Alignment Score

For each timeframe:
  1. Determine trend direction (UP/DOWN/NEUTRAL)
  2. Check if aligned with trade direction
  3. Apply timeframe weight
  4. Sum weighted alignment scores

Example (LONG trade):
  Daily:  UP (aligned)     × 1.00 weight = 1.00
  4H:     UP (aligned)     × 0.86 weight = 0.86
  1H:     UP (aligned)     × 0.72 weight = 0.72
  15M:    DOWN (not aligned) × 0.58 weight = 0.00
  5M:     UP (aligned)     × 0.44 weight = 0.44
  ─────────────────────────────────────────────
  Total MTF Score: 3.02 / 3.60 = 83.9% aligned

Why MTF Matters

Scenario	MTF Alignment	Action
All 5 timeframes aligned	~90%	High conviction trade A+ 2lots
4 of 5 aligned	~80%	Trade with normal size A 1 lot
3 of 5 aligned	~70%	Proceed with caution B 1 lot
2 or fewer aligned	<60%	No Trade

PART 4: LAYER 2 - MARKET STATE ANALYSIS

The 7 Market State Algorithms

Our system runs 7 independent algorithms to understand current market context:

#	Algorithm	What It Detects	Impact
1	Railroad Tracks	Strong momentum bars in sequence	+15% bonus
2	Creeper Move	Slow grinding trend (dangerous)	-50% penalty
3	Two-Day Trend	Trend visible on Daily for 2+ days	Required for A+
4	Phase Analysis	Accumulation/Distribution/Markup/Markdown	Phase mismatch = -25%
5	Institutional Activity	Big player accumulation/distribution	Fight = 0.7× multiplier
6	Break of Structure (BOS)	Key level breaks	Affects stop placement
7	Volatility Regime	High/Normal/Low volatility	Adjusts expectations

Penalty System

Condition	Penalty	Rationale
Creeper Move Detected	-50 points	Slow trends often reverse suddenly
MA Struggle (price fighting MA)	-30 points	Indecision, likely to chop
No Two-Day Trend	-30 points	Trend not established enough
Phase Mismatch	-25 points	Trading against market phase
No Key Level Nearby	-50 points	No technical confluence
Institutional Fight	×0.70 multiplier	Big players fighting each other

Bonus System

Condition	Bonus	Rationale
Railroad Tracks	+15 points	Strong momentum confirmation
At Key Level	+10 points	Technical confluence present
Clean Entry Setup	+10 points	Clear technical pattern

Probability Zone Analysis

The Asymmetric Probability Edge

When odds are low on one outcome, the opposite side usually carries high odds:

If new high probability drops to 15%, then 85% odds favor reversal
We position ourselves on high-probability side where price position within recent range determines continuation probability:
Every large move is divided into halves and thirds, creating probability zones.

Odds of Continuation After Pullback

┌─────────────────────────────────────────────────────┐
│  SWING HIGH                                         │
├─────────────────────────────────────────────────────┤
│  TOP THIRD        →  ~80% chance of new high        │  
├─────────────────────────────────────────────────────┤
│  TOP HALF         →  ~66% chance of new high        │
├─────────────────────────────────────────────────────┤
│  BOTTOM HALF      →  ~33% chance of new high        │
├─────────────────────────────────────────────────────┤
│  BOTTOM THIRD     →  ~15% chance of new high        │  
├─────────────────────────────────────────────────────┤
│  SWING LOW                                          │
└─────────────────────────────────────────────────────┘

Zone	Position	Continuation Probability	Action
Top Third	>66.6% of range	80% likely to continue higher	Favor LONG
Top Half	>50% of range	65% continuation	Moderate LONG bias
Bottom Half	<50% of range	35% continuation higher	Moderate SHORT bias
Bottom Third	<33.3% of range	15% continuation (85% reversal)	Favor SHORT

3-Finger Spread

Measures separation between Price, 21 MA, and 200 MA:

Three-Finger Spread Detection:
  - Large spread between Price/21MA/200MA
  - Indicates profit-taking pressure imminent
  - Minimum spread threshold: 2% of price

Structure Types:
  UPTREND:    Price > 21 MA > 200 MA (bullish stack)
  DOWNTREND:  Price < 21 MA < 200 MA (bearish stack)
  SIDEWAYS:   No clear MA separation

Crash Bar Detection

Identifies structural breaks via unusually large bars:

Parameter	Value	Meaning
crash_bar_multiplier	2.0	Bar must be 2× average size
crash_bar_lookback	10 bars	Average calculated over 10 bars
crash_bar_close_threshold	30%	Close within 30% of bar extreme

Pullback Classification

Type	Characteristics	Action
Healthy Pullback	45° drift, holds above halfway point	Good entry opportunity
Collapse	Vertical drop (>60% retracement)	Avoid entry, wait for structure
Bounce	Recovery after crash bar	Short opportunity

Signal Filtering

Probability zones filter signals:

Zone-based filtering (soft filter - affects score, doesn't block)

if zone_position < 33.3%: # Bottom third

   # Block LONG signals (only 15% chance of continuation)
   # Allow SHORT signals

if zone_position > 66.7%: # Top third

   # Allow LONG signals (80% continuation)
   # Block SHORT signals

PART 5: LAYER 3 - SETUP QUALITY GRADING

The 5-Factor Scoring System

Every potential trade is scored on 5 factors:

Factor	Weight	What It Measures
Timeframe Alignment	30%	How well all 5 timeframes agree
Trend Strength	20%	Quality of the trend (Railroad vs Creeper)
Key Level Proximity	20%	Is entry near significant S/R level?
Entry Quality	15%	How clean is the entry technique?
Risk:Reward	15%	Is the R:R ratio favorable?

Note: Weights sum to 100%. Timeframe Alignment has highest weight (30%) because MTF is the foundation.

Grade Thresholds

Grade	Score Range	Action	Position Size
A+	90-100	Trade with full conviction	2 lots
A	80-89	Trade with confidence	1 lot
B	70-79	Trade normally	1 lot
C	60-69	NO TRADE	-
D	50-59	NO TRADE	-
F	<50	NO TRADE	-

A+ Grade Special Requirements

To achieve A+ grade, ALL conditions must be true:

Final score ≥ 90
All 5 timeframes aligned with trade direction
Entry within ±25 points of MA21
Two-day trend present on Daily
No institutional fight detected

Score Calculation Example

Trade Setup: LONG on 5-min chart

Factor Scores (0-100 each):
  Timeframe Alignment: 85  × 0.30 = 25.5
  Trend Strength:      90  × 0.20 = 18.0
  Key Level Proximity: 70  × 0.20 = 14.0
  Entry Quality:       80  × 0.15 = 12.0
  Risk:Reward:         75  × 0.15 = 11.25
                              ──────────
  Base Score:                    80.75

Penalties Applied:
  - No Railroad Tracks: 0
  - No Creeper: 0
  - Has Two-Day: 0
                              ──────────
  Final Score: 80.75 → Grade: A

PART 6: HARD LAYER 4 - FILTERS

HARD FILTERS block trades completely. If ANY hard filter fails, NO TRADE happens regardless of how good the setup looks.

3 Hard Filters

Filter	Rule	Effect
1. Direction Filter	MA21 slope must match trade direction	Wrong direction = BLOCKED
2. Grade Filter	Only A+, A, B grades allowed	C/D/F grades = BLOCKED
3. Hour Filter	Block hours [WIP]	Blocked hours = BLOCKED

Filter 1: Direction (MA21 Slope)

MA21 Slope	Allowed Direction	Logic
Rising (↗)	LONG only	Trade with uptrend, never short
Declining (↘)	SHORT only	Trade with downtrend, never long
Flat (→)	Use MTF direction	Higher timeframes decide

Filter 2: Grade

Grade	Action
A+, A, B	PASS - Proceed to entry
C, D, F	BLOCKED - No trade

Filter 3: Hour [work in progress examples]

Hour	Status	Reason
9 (9:00-9:59 AM)	BLOCKED	Market open volatility
10-21 (10:00 AM - 9:59 PM)	ALLOWED	Normal trading hours
22 (10:00-10:59 PM)	BLOCKED	Near market close
23 (11:00-11:59 PM)	BLOCKED	Market close

PART 7: LAYER 5 - ENTRY TECHNIQUE

MA21 Zone Principle

"The MA is a ZONE, not a thin line or exact value"
Entry is allowed within ±25 points of MA21, not just at the exact MA value.

Why ±25 Points?

Price rarely touches MA exactly
Allows for normal market noise

Entry Techniques

Technique	Direction	Description
NEAR_MA	Both	Price within ±25 pts of MA21 (most common)
MA_BOUNCE_LONG	Long	Price touches MA21 and bounces up
MA_BOUNCE_SHORT	Short	Price touches MA21 and rejects down
GREEN_BAR_AFTER_PULLBACK	Long	Bullish candle after pullback to MA
RED_BAR_AFTER_RALLY	Short	Bearish candle after rally to MA
BOS_ENTRY_LONG	Long	Break of structure to upside
BOS_ENTRY_SHORT	Short	Break of structure to downside

PART 8: STOP LOSS CALCULATION

Stop Loss Methods (Priority Order)

Priority	Method	Description
1	BOS-Based Stop	Below/above break of structure level
2	Swing-Based Stop	Below recent swing low (LONG) or above swing high (SHORT)
3	Default Stop	Fixed 40 points from entry

Minimum Stop Distance

MINIMUM: 40 points

This prevents:

Getting stopped out by normal noise
Excessive trading costs from tight stops
Whipsaws in market manipulations, this varies depending on markets, nature of that trade

PART 9: TARGET CALCULATION

The 50% Rule

Target = 50% of distance to MA21

For mean reversion trades, we target halfway back to moving average.

Why 50%?

Conservative target ensures higher hit rate
Based on "divide the move in half" principle
Captures partial reversion without being greedy
Works well with trailing stop to capture more

Minimum Target Rule

Minimum Target = Risk × 1.5

Example:
  Entry: 5700
  Stop: 5660 (40 points risk)

  50% to MA might give: 30 points
  But minimum is: 40 × 1.5 = 60 points

  Final Target: 5760 (60 points)

PART 10: DYNAMIC STOP MANAGEMENT

Two-Phase Protection

After entry, stops are managed dynamically in two phases:

Phase	Trigger	Action
Phase 1: Breakeven	+25 points profit	Move stop to entry + 2 points
Phase 2: Trailing	+20 points profit	Trail stop using ATR × 2

Phase 1: Breakeven Stop

Configuration:
  breakeven_activation = 25 points
  breakeven_buffer = 2 points

Example (LONG from 5700):
  Price reaches 5725 (+25 pts profit)
  → Stop moves from 5660 to 5702 (entry + 2)
  → Trade is now "risk-free"

Phase 2: Trailing Stop

Configuration:
  trailing_stop_activation = 20 points
  trailing_stop_method = ATR_MULTIPLE
  atr_period = 14 bars
  atr_multiplier = 2.0
  minimum_trail_distance = 15 points

Example (LONG from 5700, ATR = 12):
  Trailing Distance = 12 × 2 = 24 points

  Price at 5740:
  → Trail stop = 5740 - 24 = 5716

  Price at 5760:
  → Trail stop = 5760 - 24 = 5736 (moved UP)

  Price drops to 5736:
  → STOPPED OUT at 5736 (profit locked)

Why Both Phases?

Phase	Purpose
Breakeven	Eliminate risk quickly once trade moves in favor
Trailing	Let winners run while protecting accumulated profit

PART 11: SLIPPAGE & COSTS

Slippage Model

Event	Slippage	Rationale
Entry	+1.0 point	Normal market fill
Stop Loss Exit	+2.0 points	Stops slip more in fast moves
Target Exit	+0.5 points	Limit orders have minimal slippage

Cost Structure

Cost Type	Value
Commission	Rs 20 per lot per side
STT	0.01% on sell side
Exchange Fees	~Rs 2 per lot
Stamp Duty	State-dependent

Why Model Slippage?

Backtest results must reflect real trading
Prevents over-optimistic performance estimates
Stop loss slippage is higher because stops often trigger during fast moves
Total costs ~Rs 136 per round-trip lot for Crudeoil 1 lot, Nifty 158

PART 12: EXIT RULES

3 Exit Conditions

Exit Type	Condition
Stop Loss	Price hits stop (original or trailing)
Target	Price hits take profit level
Timeout	End of day (no overnight holds)

PART 13: PUTTING IT ALL TOGETHER

Trade Flow

┌─────────────────────────────────────────────────────────────────┐
│  STEP 1: Load data for all 5 timeframes                         │
│  Daily, 4H, 1H, 15M, 5M OHLCV data                             │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 2: LAYER 1 - MTF Analysis (Foundation)                    │
│  Calculate MA21, MA200, trend direction for each timeframe      │
│  Compute MTF alignment score                                    │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 3: LAYER 2 - Market State Analysis                        │
│  Run 7 algorithms: Railroad, Creeper, Phase, BOS, etc.          │
│  Calculate penalties and bonuses                                │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 4: LAYER 3 - Setup Quality Grading                        │
│  Score 5 factors, apply penalties/bonuses                       │
│  Assign grade: A+ / A / B / C / D / F                           │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 5: LAYER 4 - HARD FILTERS (The Gate)  ◄── PASS/FAIL      │
│  • Direction: MA21 slope matches trade direction?               │
│  • Grade: Is grade A+, A, or B?                                 │
│  • Hour: Is current hour allowed (not 9, 22, 23)?               │
│  ANY FAIL → NO TRADE                                            │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 6: LAYER 5 - Entry Technique                              │
│  Is price within ±25 points of MA21?                            │
│  Select entry technique (NEAR_MA, BOS_ENTRY, etc.)              │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 7: Calculate Stop Loss                                    │
│  BOS-based → Swing-based → Default (40 pts minimum)             │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 8: Calculate Target                                       │
│  50% of distance to MA (minimum 1.5× risk)                      │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 9: Execute Trade                                          │
│  Apply entry slippage (+1 pt), create trade record              │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 10: Manage Trade                                          │
│  Monitor: Breakeven at +25 pts → Trail at +20 pts               │
│  Exit: Stop hit | Target hit | Timeout                          │
└─────────────────────────────────────────────────────────────────┘

PART 14: HARD vs SOFT FILTERS

Understanding the Difference

Filter Type	Behavior	Examples
HARD	Blocks trade completely	Direction filter, Hour filter, Grade C/D/F
SOFT	Affects quality score	MTF alignment, Market state penalties

Complete Filter List

Filter	Type	Effect
MA21 Direction	HARD	Wrong direction = NO TRADE
Hour Filter	HARD	Hours 9, 22, 23 = NO TRADE
Grade < B	HARD	C/D/F grades = NO TRADE
MTF Alignment	SOFT	Low alignment = reduced score (30% weight)
Creeper Move	SOFT	-50 points penalty
No Two-Day Trend	SOFT	-30 points penalty
Institutional Fight	SOFT	0.7× score multiplier
Far from MA21	SOFT	-40 points penalty

APPENDIX A: CONFIGURATION VALUES

MTF Configuration

Parameter	Value	Source File	Description
context_timeframe	DAILY	main.py:162	Highest timeframe for overall bias
primary_timeframe	1-HOUR	main.py:163	Primary trend direction
confirmation_timeframe	15-MIN	main.py:164	Entry timing confirmation
entry_timeframe	5-MIN	main.py:165	Execution timeframe
require_all_timeframes_aligned	False	main.py:166	Allow partial alignment
min_alignment_score	0.70 (70%)	main.py:167	Minimum MTF alignment score
wait_for_15min_alignment	True	main.py:168	Wait for 15M confirmation
min_15min_confirmation_bars	2 bars	main.py:169	Bars needed for 15M confirmation

Entry Configuration

Parameter	Value	Source File
entry_timeframe	5-Minute	main.py:165
ma_buffer_points	25 points	signal_generation_trade_management.py:68
blocked_hours	[9, 22, 23]	signal_generation_trade_management.py:137
enable_hour_filter	True	signal_generation_trade_management.py:89
enable_ma_direction_filter	True	signal_generation_trade_management.py:97

Stop/Target Configuration

Parameter	Value	Source File
min_stop_distance	40 points	signal_generation_trade_management.py:59
default_risk_reward	1.5	signal_generation_trade_management.py:62
bos_stop_buffer_points	5 points	signal_generation_trade_management.py:81

Dynamic Stop Configuration

Parameter	Value	Source File
enable_trailing_stop	True	trade_execution_engine.py:58
trailing_stop_method	ATR_MULTIPLE	trade_execution_engine.py:63
atr_period	14 bars	trade_execution_engine.py:64
atr_multiplier	2.0	trade_execution_engine.py:65
trailing_stop_activation	20 points	trade_execution_engine.py:60
enable_breakeven_stop	True	trade_execution_engine.py:69
breakeven_activation	25 points	trade_execution_engine.py:70
breakeven_buffer	2 points	trade_execution_engine.py:71
minimum_trail_distance	15 points	trade_execution_engine.py:370

Slippage Configuration

Parameter	Value	Source File
base_slippage_points	1.0 point	trade_execution_engine.py:38
volatility_slippage_factor	0.5	trade_execution_engine.py:39
market_impact_factor	0.1	trade_execution_engine.py:40
max_market_impact_slippage	2.0 points	trade_execution_engine.py:43
stop_loss_slippage	2.0 points	trade_execution_engine.py:50
take_profit_slippage	0.5 points	trade_execution_engine.py:51

Trade Execution Limits

Parameter	Value	Source File	Description
max_holding_period_minutes	480 (8 hours)	trade_execution_engine.py:46	Maximum time a trade can stay open
min_holding_period_minutes	5 minutes	trade_execution_engine.py:47	Minimum holding before exit
max_position_size	200 lots	trade_execution_engine.py:54	Maximum lots per single trade
max_concurrent_trades	3	trade_execution_engine.py:55	Maximum simultaneous open trades
market_close_buffer_minutes	15 minutes	trade_execution_engine.py:75	Close trades before market close
avoid_news_minutes	30 minutes	trade_execution_engine.py:74	Buffer around news events

Cost Configuration

Parameter	Value	Source File	Description
commission_per_lot	Rs 20/lot/leg	signal_generation_trade_management.py:49	Dhan broker commission
transaction_tax_rate	0.005% per leg	signal_generation_trade_management.py:55	CTT (0.01% round-trip)
lot_size_multiplier	100 barrels	signal_generation_trade_management.py:56	MCX Crude lot size
initial_capital	Rs 1,00,000	main.py:1131	Starting capital for backtest

Grading Configuration

Parameter	Value	Source File
timeframe_alignment_weight	30%	setup_quality_detection.py:44
trend_strength_weight	20%	setup_quality_detection.py:45
key_level_proximity_weight	20%	setup_quality_detection.py:47
entry_technique_weight	15%	setup_quality_detection.py:46
risk_reward_weight	15%	setup_quality_detection.py:48
a_plus_min_score	90	setup_quality_detection.py:51
a_min_score	80	setup_quality_detection.py:52
b_min_score	70	setup_quality_detection.py:53

Probability Zone Configuration

Parameter	Value	Source File
enable_probability_zone_filter	True	signal_generation_trade_management.py:104
probability_zone_swing_lookback	20 bars	signal_generation_trade_management.py:105
probability_zone_min_range	20 points	signal_generation_trade_management.py:106
top_third_threshold	66.7%	probability_zone_analysis.py:125
top_third_probability	80%	probability_zone_analysis.py:131
bottom_third_probability	15%	probability_zone_analysis.py:134
crash_bar_multiplier	2.0	probability_zone_analysis.py:145
3_finger_min_spread_pct	2%	probability_zone_analysis.py:141

@@ Line 216: / Line 216: @@
 * We position ourselves on high-probability side where price position within recent range determines continuation probability:
 * Every large move is divided into '''halves and thirds''', creating probability zones.
 === Odds of Continuation After Pullback ===
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