Low Volatility Breakout Setup

Entry Logic

• Entry trigger: A stock or market is in a period of extremely low volatility.
• Confirmation: A breakout from the consolidation range on high volume.
• Timeframe: Daily chart.
• Location context: The consolidation occurs after a strong prior trend.
• Market condition: A "coiling" market, ready for a big move.

Exit Logic

• Profit target: A measured move based on the height of the consolidation range.
• Scaling out: Scale out at 1R, 2R, and the final target.
• Trailing stop: Use a fast-moving average to trail the stop.
• Signal failure exit: The breakout fails and the price returns to the range.
• Opposite signal exit: A breakout in the opposite direction.
• Time expiration: If the target is not reached in a reasonable time, exit.
• Momentum loss: The momentum of the breakout fades.

Stop Loss Structure

• Hard stop: A close back inside the consolidation range.
• Soft stop: If the breakout lacks follow-through.
• 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 low volatility allows for a larger position size for the same risk.
• 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 and tight consolidation with low volatility.
• Instruments: Stocks with a history of making explosive moves.
• Time restrictions: Not applicable.
• Chop/news avoidance: Be aware of upcoming earnings or news.

Context Framework

• Trend direction: The breakout should be in the direction of the prior trend.
• VWAP relationship: Not applicable.
• MA relationship: The price is often trading sideways around its moving averages.
• Range location: In a tight, well-defined range.
• Higher TF alignment: The prior trend on the weekly chart should be in the same direction as the breakout.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R profit.
• Scale out: At 1R, 2R, and the final target.
• Add size: Not recommended.
• Fast vs slow moves: Expect a fast and explosive move.

Time Rules

• Optimal window: Not applicable.
• Times to avoid: Not applicable.
• Session notes: Not applicable.

Setup Classification

• A+ setup: A multi-month consolidation with extremely low volatility.
• A setup: A multi-week consolidation with low volatility.
• B setup: A multi-day consolidation with low volatility.
• C setup: A wide and choppy consolidation.

Market Selection Criteria

• Instruments: Stocks known for their volatility, like tech and biotech.
• Volume: Low volume during consolidation, high volume on breakout.
• Volatility: The setup is based on low volatility.

Statistical Edge Metrics

• Win rate: 40-50%.
• Avg win: 3R or more.
• Avg loss: 1R.
• Profit factor: 1.5 or more.
• Expectancy: High.

Failure Conditions

• When strategy fails: When the breakout is a false signal.
• Specific scenarios to avoid: Trading breakouts with no volume confirmation.

Psychological Rules

• Mental discipline: The patience to wait for the setup to develop.
• Key mental discipline requirements: The courage to act decisively when the breakout occurs.

Advanced Components

• Regime detection: Use a volatility 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 higher timeframe trend.

Location

• Where strongest: After a strong prior trend.
• Where weakest: In a market with no clear direction.