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Component:Signal Generation

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Revision as of 22:22, 10 January 2026 by 152.57.38.103 (talk)

Signal Generation & Trade Management

Purpose

"Should we trade? Which direction? Where's entry/stop/target?"

This component is the decision maker. It receives graded setups from Layer 3 and decides:

  1. Should we take this trade? (passes all gate filters)
  2. Which direction? (LONG or SHORT)
  3. Where to enter, stop, and exit? (entry techniques)

Trading Market Principle

"Trade with the trend, not against it"

  • MA21 rising = LONG only → don't fight a rising market
  • MA21 declining = SHORT only → don't catch falling knives
  • MA21 flat = use MTF direction as tiebreaker
  • Gate filters protect capital → blocked hours, wrong zone, weak confirmation = skip
  • Only high-quality setups traded → A+, A, B grades only

Decision Flow

           ┌─────────────────────────────────┐
           │  Setup Quality Result (Layer 3) │
           │  Grade: A+/A/B/C/D/F            │
           └─────────────────────────────────┘
                         │
                         ▼
           ┌─────────────────────────────────┐
           │  GATE 1: Grade Filter           │
           │  Only A+, A, B pass             │
           │  C, D, F → REJECTED             │
           └─────────────────────────────────┘
                         │
                         ▼
           ┌─────────────────────────────────┐
           │  GATE 2: Hour Filter            │
           │  Blocked: 9 AM, 10 PM, 11 PM    │
           │  (Loss-making hours)            │
           └─────────────────────────────────┘
                         │
                         ▼
           ┌─────────────────────────────────┐
           │  GATE 3: Direction Determination│
           │  MA21 rising → LONG             │
           │  MA21 declining → SHORT         │
           │  Flat/unclear → NO TRADE        │
           └─────────────────────────────────┘
                         │
                         ▼
           ┌─────────────────────────────────┐
           │  GATE 4: Probability Zone Filter│
           │  Top third + LONG = OK          │
           │  Bottom third + LONG = BLOCKED  │
           │  (Trades with probability)      │
           └─────────────────────────────────┘
                         │
                         ▼
           ┌─────────────────────────────────┐
           │  Calculate Entry/Stop/Target    │
           │  Generate Signal                │
           └─────────────────────────────────┘

Gate Filters

Gate 1: Grade Filter

Only high-quality setups are traded:

Grade Action
A+, A, B PASS → Generate signal
C, D, F BLOCKED → No signal generated

Gate 2: Hour Filter

Block historically loss-making hours: 

Blocked Hours: [9, 22, 23]  // 9 AM, 10 PM, 11 PM IST

IF current_hour IN blocked_hours:
    RETURN None  // No signal

   === Gate 3: Direction Determination ===

 Direction is determined by MA21 slope with 1H → 15m fallback:

  trend_direction = market_state.trend_direction

  IF trend_direction == "up":
      direction = LONG    // MA21 rising → trade long

  ELIF trend_direction == "down":
      direction = SHORT   // MA21 declining → trade short

  ELSE:
      // MA21 flat/unclear → use MTF fallback
      IF mtf_direction == "up":
          direction = LONG
      ELIF mtf_direction == "down":
          direction = SHORT
      ELSE:
          // TICKET-22: 1H → 15m fallback (matches TimeframeSettings)
          // Config: primary=1H, confirmation=15m, wait_for_15min_alignment=True

          one_hour_dir = timeframe_results['1h'].direction
          fifteen_min_dir = timeframe_results['15m'].direction

          // Priority 1: 1H + 15m agreement (strongest)
          IF one_hour_dir == fifteen_min_dir AND one_hour_dir IN ['up', 'down']:
              direction = LONG if one_hour_dir == 'up' else SHORT

          // Priority 2: 1H only (primary_timeframe)
          ELIF one_hour_dir IN ['up', 'down']:
              direction = LONG if one_hour_dir == 'up' else SHORT

          // Priority 3: 15m only (confirmation_timeframe)
          ELIF fifteen_min_dir IN ['up', 'down']:
              direction = LONG if fifteen_min_dir == 'up' else SHORT

          ELSE:
              RETURN None  // ALL timeframes sideways → true consolidation
  
 Direction Hierarchy:
 # MA21 slope (5min) - primary
 # MTF primary_direction - first fallback
 # 1H + 15m agreement - strongest MTF signal
 # 1H only - primary_timeframe fallback
 # 15m only - confirmation_timeframe fallback
 # None - only if all sideways (true consolidation)

Gate 4: Probability Zone Filter

Filters trades based on price position within range:

Zone LONG SHORT Logic
Top Third Blocked Allowed 80% continuation down, 15% up
Middle Half Allowed Allowed Neutral zone
Bottom Third Allowed Blocked 80% continuation up, 15% down

Sideways Market Exception: In creeper/consolidation, uses mean reversion (opposite logic).

Stop Loss Calculation

Stop placement based on entry technique:

Entry Technique LONG Stop SHORT Stop
GREEN_BAR_PULLBACK Below pullback low Above rally high
BREAKOUT_PULLBACK min(last 3 lows) max(last 3 highs)
MA_BOUNCE MA21 - 5 points MA21 + 5 points
BOS_ENTRY min(last 10 lows) + buffer max(last 10 highs) - buffer
DISCOUNT_ZONE entry × 0.99 entry × 1.01
DEFAULT entry - 40 points entry + 40 points

Minimum Stop Distance: 40 points (prevents tight stops hitting on noise)

Take Profit Calculation

Implements "cut the move in half" principle: 

distance_to_ma = |entry_price - MA21|
target_distance = distance_to_ma × 0.5

IF LONG:
    take_profit = entry_price + target_distance
ELSE:
    take_profit = entry_price - target_distance

Minimum R:R: 1.5 (target must be at least 1.5× risk)

Cost Calculations

Commission (Dhan Broker)

commission = position_size × Rs 20 per lot

CTT (Commodity Transaction Tax)

contract_value = entry_price × lot_size × position_size
tax = contract_value × 0.0001  // 0.01% total (0.005% per leg)

Configuration

Parameter Value Description
commission_per_lot 20.00 Rs per lot (Dhan)
transaction_tax_rate 0.00005 0.005% per leg × 2 = 0.01% CTT
lot_size_multiplier 100 MCX lot size
min_stop_distance 40 Minimum stop in points
default_risk_reward 1.5 Minimum R:R ratio
enable_hour_filter True Block loss-making hours
blocked_hours [9, 22, 23] Hours to skip
enable_ma_direction_filter True MA21 alignment required
enable_probability_zone_filter True Zone probability check
enable_color_change_filter False Disabled (too restrictive)

Output

Signal Object:

Field Type Description
direction Enum LONG or SHORT
entry_price float Current close price
stop_loss_price float Calculated stop level
take_profit_price float Calculated target level
position_size int From setup quality (1 or 2 lots)
setup_quality Enum A+, A, or B
entry_technique Enum How stop was determined

Dependencies

Upstream:

Internal:

Downstream:

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