Trend and Compression Breakouts with ATR Risk Controls

Summary

This strategy combines a long-term trend filter with a compression condition and directional expansion signals. It classifies the trend using price and a faster moving average relative to a slower moving average, then defines a narrow state by the percentage distance between those averages. Within that state, entries can follow a large candle body relative to ATR or a two-candle continuation pattern that breaks the prior bar's range. Users can restrict signals to long, short, or both directions.

Stops and profit targets are set from ATR and a configurable reward-to-risk multiple, with prices rounded to the instrument's minimum tick. The accompanying explanation presents compression followed by expansion as the setup's rationale and describes how input thresholds affect selectivity. It offers no measured strategy results or independent evidence for the stated institutional interpretation. Threshold suitability depends on the market and timeframe, and the usual backtest and live-trading risks remain.

Key ideas

• The trend filter requires price and the faster average to align on the same side of the slower average.
• The narrow-state filter measures the relative gap between the two moving averages.
• Directional signals come from either an ATR-sized candle or a reversal-color candle that closes beyond the previous bar's range.
• ATR sets stop distance, while a configurable reward multiple sets the target distance.
• Thresholds require market-specific evaluation, and the document does not report performance results.

Tags

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