Consolidation Box Breakout

Entry Logic

• Exact entry trigger: Buy on a close above the high of a defined consolidation box. Sell on a close below the low of the box.
• Confirmation requirements: Breakout volume must be 1.75x the 20-period moving average of volume.
• Timeframe required: 15-minute or 60-minute chart.
• Location context: The consolidation box should form after a strong trend, indicating a pause.
• Market condition requirement: A trending market that is temporarily moving sideways.

Exit Logic

• Profit target(s): Target 1 is the height of the consolidation box added to the breakout price. Target 2 is 2x the height of the box.
• Scaling out rules: Exit 50% at Target 1. Trail the remaining half.
• Trailing stop rules: Use a trailing stop below the low of the previous candle for longs, and above the high for shorts.
• Exit on signal failure: If the breakout fails and price re-enters the box, exit the trade.
• Exit on opposite signal: A breakout in the opposite direction is an exit signal.
• Exit on time expiration: Close all positions by the end of the trading day.
• Exit on momentum loss: A divergence on a momentum oscillator can signal an exit.

Stop Loss Structure

• Hard stop location: Place the stop loss at the midpoint of the consolidation box.
• Soft stop rules: Not used.
• Maximum dollar loss per trade: 1% of the trading account.
• Maximum percent loss per trade: 1%.
• Structural stop placement: The stop is placed within the consolidation structure.

Risk Management Framework

• Risk per trade: 0.5% of account equity.
• Maximum daily loss limit: 2% of account equity.
• Maximum weekly loss limit: 5% of account equity.
• Maximum drawdown allowed: 15%.
• Risk-reward ratio requirement: Minimum 2:1 reward-to-risk ratio.

Position Sizing Model

• Recommended sizing approach: Position size is determined by the stop loss distance and the account risk limit.
• Volatility-based adjustment: The height of the box determines the stop loss and position size.
• Conviction-based sizing: A+ setups get full size. B setups get half size.
• Scaling in rules: Do not scale into consolidation box breakout trades.
• Scaling out rules: Scale out at predefined profit targets.

Trade Filtering

• Market conditions to avoid: Avoid trading consolidation box breakouts in choppy, non-trending markets.
• Specific setups required: Look for well-defined consolidation boxes with clear support and resistance levels.
• Stock/instrument requirements: High-volume stocks that are in a clear trend.
• Time of day restrictions: No specific time of day restrictions.
• Chop/news avoidance rules: Avoid trading around major news events.

Context Framework

• Trend direction assessment: The breakout should be in the direction of the prevailing trend.
• VWAP relationship: For long trades, price should be above VWAP. For short trades, below VWAP.
• Moving average relationship: The short-term moving averages should be aligned with the direction of the trade.
• Range location: The consolidation box should form after a period of expansion.
• Higher timeframe alignment: The direction of the breakout should align with the trend on the daily chart.

Trade Management Rules

• When to move stop to breakeven: Move the stop to breakeven after the first profit target is reached.
• When to scale out: At Target 1 and Target 2.
• When to add size: Do not add to the position.
• How to handle fast moves vs slow moves: In fast-moving markets, trail the stop more aggressively.

Time Rules

• Optimal trading window: Any time during the trading day.
• Times to avoid: Avoid trading during low-volume periods.
• Session-specific notes: The pattern can be found in all trading sessions.

Setup Classification

• A+ setup criteria: Consolidation box breakout in the direction of a strong trend, with high volume confirmation.
• A setup criteria: Consolidation box breakout with good volume, but some minor divergences.
• B setup criteria: Consolidation box breakout on average volume.
• C setup criteria: Low-volume breakout against the trend. Avoid.

Market Selection Criteria

• Instrument requirements: Liquid stocks and ETFs.
• Volume/liquidity requirements: High average daily volume.
• Volatility requirements: The stock should have a good daily range.

Statistical Edge Metrics

• Expected win rate: 40-50%.
• Average win size: 2.5R.
• Average loss size: 1R.
• Profit factor: 1.5 - 2.0.
• Expectancy per trade: Positive.

Failure Conditions

• Market conditions where strategy fails: Fails in choppy, sideways markets.
• Specific scenarios to avoid: Avoid breakouts that occur on low volume.

Psychological Rules

• Key mental discipline requirements: Requires patience to wait for the pattern to form and the discipline to act on the breakout.

Advanced Components

• Market regime detection: Use a filter to identify trending markets.
• Volatility/liquidity filters: Apply volume and volatility filters.
• Correlation filters: Be aware of market correlations.
• Multi-timeframe alignment: The breakout should be in the direction of the higher timeframe trend.

Location

• Where this setup is strongest: In strongly trending markets, after a brief consolidation.
• Where this setup is weakest: In range-bound markets.
• Location changes outcome: A consolidation box at a key support or resistance level is a stronger signal.