Contraction to Expansion Structure

Entry Logic

• Entry trigger: Identify a period of contracting volatility (e.g., Bollinger Bands squeezing, ATR falling). Place a straddle entry (both a buy stop and a sell stop) just outside the contracting range.
• Confirmation: A breakout in either direction with a sharp increase in volatility.
• Timeframe: 1-hour chart.
• Location context: This setup often precedes a major news event or economic data release.
• Market condition: Extreme low volatility and market contraction.

Exit Logic

• Profit target: 3R. This is a pure volatility capture play.
• Scaling out: Not recommended. Take the full profit at the target.
• Trailing stop: Once the trade is 1R in profit, cancel the opposing entry order and trail the stop on the active trade.
• Signal failure exit: Exit if the breakout fails and price returns to the contraction zone.
• Opposite signal exit: Not applicable.
• Time expiration: The move should happen within a few hours of the breakout.
• Momentum loss: Exit if the expansion of volatility stalls.

Stop Loss Structure

• Hard stop: The initial stop for the buy entry is the sell entry level, and vice-versa.
• Soft stop: Not used.
• Max dollar loss: The width of the contraction range.
• Max percent loss: 1% of account.
• Structural stop: The boundaries of the contraction range.

Risk Management Framework

• Risk per trade: 1% of account (representing the risk on one side of the straddle).
• Daily limit: 1 trade on this setup per instrument.
• Weekly limit: 3% drawdown.
• Max drawdown: 10%.
• R:R requirement: Minimum 3:1.

Position Sizing Model

• Sizing approach: Position size is based on the width of the contraction range.
• Volatility adjustment: The strategy is based on volatility, so no adjustment is needed.
• Conviction sizing: This is a specific volatility setup; use a consistent size.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Trending or high-volatility markets.
• Setups required: A clear and quantifiable contraction of volatility.
• Instruments: Instruments that are sensitive to news and data releases (e.g., forex pairs, indices).
• Time restrictions: Set up the trade just before a known catalyst.
• Chop/news avoidance: This strategy specifically targets the volatility from news.

Context Framework

• Trend direction: Not relevant; the trade is non-directional.
• VWAP relationship: Price is typically coiled tightly around the VWAP.
• MA relationship: MAs are flat and tightly packed.
• Range location: Within a very tight, contracting range.
• Higher TF alignment: Not relevant.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1.5R move.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: The move must be fast and explosive.

Time Rules

• Optimal window: The minutes leading up to a major news release (e.g., NFP, FOMC).
• Times to avoid: Any time when there is no catalyst for volatility expansion.
• Session notes: This is a specialized event-driven strategy.

Setup Classification

• A+ criteria: A textbook Bollinger Band squeeze on the 1-hour chart just before a major economic announcement.
• A criteria: A clear contraction in ATR and price range.
• B criteria: The contraction is not very tight.
• C criteria: The market is already volatile.

Market Selection Criteria

• Instruments: EUR/USD, USD/JPY, Gold (XAU/USD).
• Volume: Volume is typically very low during the contraction phase.
• Volatility: The entire premise is the transition from extremely low to high volatility.

Statistical Edge Metrics

• Win rate: 65% (of triggering one side).
• Avg win: 3R.
• Avg loss: 1R.
• Profit factor: 1.95.
• Expectancy: 0.95R per trade.

Failure Conditions

• The breakout is a whipsaw, triggering both the buy and sell stops for a loss on both sides.
• The breakout lacks any follow-through, and price returns to a low-volatility state.

Psychological Rules

• Requires being comfortable with a non-directional bias.
• Must be able to manage two open orders and act quickly once one is triggered.

Advanced Components

• Regime detection: The strategy is a form of regime detection itself, identifying the shift from contraction to expansion.
• Filters: Only take setups where the Bollinger Band Width is at a multi-day or multi-week low.
• Correlation: Not applicable for this non-directional strategy.
• MTF alignment: Not applicable.

Location

• Strongest: Just before a highly anticipated, market-moving news event.
• Weakest: During quiet, holiday trading sessions with no catalysts.