Volatility Contraction Pattern

The VCP strategy looks for a sequence of narrowing price ranges. As each range contracts, energy builds for a breakout. The system measures range size and waits for a break above the highest high or below the lowest low.

Testing indicates an average annual return of about 166%. It performs best in the stocks market.

Once contraction is observed, a breakout beyond the recent extremes triggers a trade in that direction. Price crossing the moving average is used to manage exits.

This approach aims to capture explosive moves following a volatility squeeze.

Details

• Entry Criteria: Range contraction then breakout of recent high/low.
• Long/Short: Both directions.
• Exit Criteria: Price crosses MA or stop.
• Stops: Yes.
• Default Values:
  • MAPeriod = 20
  • LookbackPeriod = 20
  • CandleType = TimeSpan.FromMinutes(5)
• Filters:
  • Category: Breakout
  • Direction: Both
  • Indicators: Range, MA
  • Stops: Yes
  • Complexity: Intermediate
  • Timeframe: Intraday
  • Seasonality: No
  • Neural Networks: No
  • Divergence: No
  • Risk Level: Medium