ATR Contraction Setup

Entry Logic

• Entry trigger: Average True Range (ATR) is at a multi-period low.
• Confirmation: Price is consolidating in a tight range.
• Timeframe: 1-hour or 4-hour chart.
• Location context: The consolidation occurs near a key support or resistance level.
• Market condition: Low volatility, consolidation.

Exit Logic

• Profit target: The breakout from the consolidation.
• Scaling out: Not applicable, as this is a setup for a breakout.
• Trailing stop: Not applicable.
• Signal failure exit: The ATR starts to expand without a breakout.
• Opposite signal exit: Not applicable.
• Time expiration: Not applicable.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Not applicable.
• Soft stop: Not applicable.
• Max dollar loss: Not applicable.
• Max percent loss: Not applicable.
• Structural stop: Not applicable.

Risk Management Framework

• Risk per trade: Not applicable.
• Daily limit: Not applicable.
• Weekly limit: Not applicable.
• Max drawdown: Not applicable.
• R:R requirement: Not applicable.

Position Sizing Model

• Sizing approach: Not applicable.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in: Not applicable.
• Scaling out: Not applicable.

Trade Filtering

• Market conditions to avoid: High-volatility, trending markets.
• Specific setups required: A clear period of low volatility and consolidation.
• Instruments: Stocks, ETFs, and futures.
• Time restrictions: Not applicable.
• Chop/news avoidance: Not applicable.

Context Framework

• Trend direction: The consolidation can occur in both trending and ranging markets.
• VWAP relationship: Not applicable.
• MA relationship: Price is often trading around its moving averages.
• Range location: Price is in a tight range.
• Higher TF alignment: Check the daily chart for context.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Not applicable.

Time Rules

• Optimal window: Not applicable.
• Times to avoid: Not applicable.
• Session notes: Not applicable.

Setup Classification

• A+ setup: A multi-month low in ATR with a very tight consolidation.
• A setup: A multi-week low in ATR with a tight consolidation.
• B setup: A multi-day low in ATR with a consolidation.
• C setup: No clear period of low volatility.

Market Selection Criteria

• Instruments: Stocks, ETFs, and futures with good liquidity.
• Volume: Low volume during the consolidation.
• Volatility: The setup is based on low volatility.

Statistical Edge Metrics

• Win rate: Not applicable.
• Avg win: Not applicable.
• Avg loss: Not applicable.
• Profit factor: Not applicable.
• Expectancy: Not applicable.

Failure Conditions

• When strategy fails: Not applicable.
• Specific scenarios to avoid: Not applicable.

Psychological Rules

• Mental discipline: Patience to wait for the breakout.
• Key mental discipline requirements: Not applicable.

Advanced Components

• Regime detection: Use a filter to identify low-volatility regimes.
• Filters: Not applicable.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Where strongest: After a strong trend, as a pause before continuation.
• Where weakest: In a choppy market with no clear direction.