Bollinger Band Width Breakout

Entry Logic

• Entry trigger: Bollinger Band Width (BBW) is at a multi-period low, followed by a breakout.
• Confirmation: Price closes outside the Bollinger Bands on high volume.
• Timeframe: 1-hour or 4-hour chart.
• Location context: The breakout occurs near a key support or resistance level.
• Market condition: A transition from low volatility to high volatility.

Exit Logic

• Profit target: 2R or the next major support or resistance level.
• Scaling out: Scale out at 1.5R and 2R.
• Trailing stop: Trail the stop below the middle Bollinger Band.
• Signal failure exit: Price reverses and closes back inside the Bollinger Bands.
• Opposite signal exit: A breakout in the opposite direction.
• Time expiration: Exit after 3-5 bars if the move stalls.
• Momentum loss: The price starts to move sideways.

Stop Loss Structure

• Hard stop: A close back inside the Bollinger Bands.
• Soft stop: If the momentum of the breakout fades.
• Max dollar loss: 1% of account capital.
• Max percent loss: 1% of account capital.
• Structural stop: Below the low of the breakout candle for a long, or above the high for a short.

Risk Management Framework

• Risk per trade: 0.5% of account capital.
• Daily limit: 2% of account capital.
• Weekly limit: 5% of account capital.
• Max drawdown: 15% of account capital.
• R:R requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: The strategy is based on a volatility expansion.
• Conviction sizing: A+ setups get full size.
• Scaling in: Not recommended.
• Scaling out: Scale out at predefined profit targets.

Trade Filtering

• Market conditions to avoid: High-volatility, choppy markets.
• Specific setups required: A clear period of low volatility followed by a breakout.
• Instruments: Stocks, ETFs, and futures.
• Time restrictions: Avoid trading during the first 30 minutes of the session.
• Chop/news avoidance: Avoid trading around major news releases.

Context Framework

• Trend direction: The breakout should be in the direction of the prevailing trend.
• VWAP relationship: The breakout should be above VWAP for a long, or below for a short.
• MA relationship: The breakout should be in the direction of the moving averages.
• Range location: The breakout occurs from a well-defined range.
• Higher TF alignment: The breakout is in the same direction as the trend on the daily chart.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R profit.
• Scale out: At 1.5R and 2R profit targets.
• Add size: Not recommended.
• Fast vs slow moves: Be prepared for a fast move after the breakout.

Time Rules

• Optimal window: During the main trading session.
• Times to avoid: During lunch hours and the end of the day.
• Session notes: This strategy works well in all sessions.

Setup Classification

• A+ setup: A multi-month low in BBW followed by a high-volume breakout.
• A setup: A multi-week low in BBW followed by a breakout.
• B setup: A multi-day low in BBW followed by a breakout.
• C setup: No clear period of low volatility.

Market Selection Criteria

• Instruments: Stocks, ETFs, and futures with good liquidity.
• Volume: High volume on the breakout.
• Volatility: The strategy is based on a transition from low to high volatility.

Statistical Edge Metrics

• Win rate: 40-50%.
• Avg win: 3R.
• Avg loss: 1R.
• Profit factor: 1.5.
• Expectancy: 0.5R per trade.

Failure Conditions

• When strategy fails: When the breakout is a false signal (head fake).
• Specific scenarios to avoid: Chasing breakouts that have already moved a significant distance.

Psychological Rules

• Mental discipline: Must be able to handle a lower win rate.
• Key mental discipline requirements: Patience to wait for the setup, and discipline to cut losses quickly.

Advanced Components

• Regime detection: Use a filter to identify low-volatility regimes.
• Filters: Use a volume filter to confirm the breakout.
• Correlation: Not applicable.
• MTF alignment: The breakout should be in the direction of the trend on a higher timeframe.

Location

• Where strongest: After a prolonged period of consolidation.
• Where weakest: In choppy, range-bound markets.