Breakout Strategy
Compression → Expansion
The Concept
Strong price moves often start after a period of compression — when volatility contracts and price trades in a tight range. The breakout occurs when price closes decisively outside this range with expanding volume/volatility.
Key Insight: The tighter the compression (measured by range_width relative to ATR), the more powerful the breakout tends to be. Think of it as a coiled spring.
Long Breakout Setup
Breakout Long — Price Closes Above Range High
After 6 candles of compression (tight range), price breaks out with a strong close above the range high + buffer.
Short Breakout Setup
Breakdown Short — Price Closes Below Range Low
After compression, price breaks down with a strong close below the range low + buffer.
Compression Detection
range_width < 1.8 × ATR(14)The range must be tight relative to recent volatility. This indicates a 'coiled spring' setup.
Breakout Buffer
buffer = max(spread × 2, ATR × 0.05)Add a buffer to avoid false breakouts. The close must be decisively outside the range.
Setup Detection
- Range window— Last 20 candles on 5m
- Range high— max(high) of window
- Range low— min(low) of window
- Compression— range_width < 1.8 × ATR(14)
Trigger & Targets
- Long trigger— Close > range_high + buffer
- Short trigger— Close < range_low - buffer
- Target (R-multiple)— T1 = 1R, T2 = 2R
- Target (measured)— Entry ± range_width
When It Works
Trending markets where breakouts lead to continuation. Best when 1h trend aligns with breakout direction.
Watch Out For
False breakouts that quickly reverse. The buffer helps, but some fakeouts are inevitable.
Avoid When
Low liquidity periods, around major news events, or when spreads are unusually wide.
Trend Filter (Recommended)
Align breakout direction with the higher timeframe trend for better probability:
Long Breakouts
Prefer when 1h trend_state = UP
Breakouts with trend have higher follow-through
Short Breakouts
Prefer when 1h trend_state = DOWN
Counter-trend breakouts have lower success rate
Invalidation & Risk
Stop Loss Placement
- Long: Below range_low - buffer
- Short: Above range_high + buffer
Target Methods
- R-Multiple: T1 = 1R, T2 = 2R (risk-based)
- Measured Move: Target = entry ± range_width