RSI Range Compression Breakouts with Trend and ATR Risk Filters

Summary

This strategy looks for breakouts from unusually narrow ranges in the Relative Strength Index. It measures the recent RSI high-to-low range, ranks that range against its historical window, and treats a low percentile rank as a squeeze. A long signal occurs when RSI crosses above the prior range high; a short signal crosses below the prior range low. An EMA slope selects direction, and an optional ADX threshold filters out weakly trending conditions. A squeeze remains eligible for a limited number of bars after it appears.

Position size is calculated from an equity risk percentage divided by an ATR-based stop distance, with a take-profit set as a multiple of that distance. The excerpt gives default indicator and risk parameters and includes commission and slippage assumptions, but it contains no backtest period, instrument, or performance results. There is also a likely target-price issue in the long branch: it adds the stop price times the reward multiple to the entry reference rather than multiplying the stop distance. That implementation detail should be checked before relying on the stated risk/reward behavior.

Key ideas

• The setup defines a squeeze as a historically low range in RSI and watches for a break beyond that range.
• EMA slope determines trade direction, while an optional ADX threshold filters entries.
• A recent squeeze remains eligible for signals for a configurable number of bars.
• Position size uses an equity risk allowance and ATR-based stop distance.
• The excerpt reports no backtest results, and the long target calculation appears inconsistent with a distance-based reward multiple.

Tags

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