Range Contraction as a Setup for Potential Breakouts

Summary

The document describes a range-contraction oscillator intended to compare the current day's range with the previous day's range. Its calculation expresses the current high-low range as a percentage of the prior day's high-low range. A single threshold parameter is used to flag a possible setup when yesterday's range was below the threshold and was narrower than the day before it.

The rationale, attributed to Toby Crabel, is that a contraction in the prior day's range may precede a larger move today. The indicator therefore frames contraction as a condition to watch for potential expansion, rather than giving a direction for the anticipated move. The document provides the formula and a qualitative premise, but no historical results, entry or exit rules, threshold-selection guidance, or risk controls. It does not establish that a contraction reliably leads to an explosive move, and the setup alone does not specify whether to trade long or short.

Key ideas

• The oscillator compares the current daily high-low range with the preceding day's range.
• Its range measure expresses the current range as a percentage of the previous range.
• A setup is flagged when yesterday's range is below a threshold and narrower than the day before.
• The stated premise is that contraction may precede a larger move, without specifying its direction.
• The document gives no performance evidence, threshold-selection method, or complete trading rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.