Construct a lifecycle breakout from compression

Three sequential phases

The lifecycle procedure is built from three sequential phases. The first is an accumulation phase: a late-downtrend stretch in which informed buyers may begin building longs while price still looks weak and ordinary participants stay bearish. The archive specifies that stretch as a still-intact down move, strengthening short-term momentum, and a slowing, consolidating price.

The middle stretch is a public-participation phase, after accumulation, when the move becomes obvious and a growing crowd joins it. The archive describes this later trend as public participation that anyone can see.

The last stretch is a distribution phase: a late-uptrend stretch in which informed holders may unwind longs, and sometimes open shorts, while the public remains on the long side. Distribution is specified as the mirror image of accumulation, with an intact up move and weakening short-term momentum.

Three interchangeable squeeze tests

Consolidation can be coded three interchangeable ways. Range compression flags a squeeze when the latest four-week high-low span is smaller than a chosen fraction of the prior four-week span. ATR compression flags the same idea when the latest four-week average true range is smaller than a chosen fraction of the prior four-week average true range. ADX congestion treats an average-directional-index reading below 30 for the last four weeks as evidence that a box, not a directional phase, is in force.

The consolidation box is the high-low channel printed while a squeeze or congestion rule is true. Its top is the breakout trigger and its bottom is the stop.

The long, the volume gate, and the box-stop exit

The range-breakout entry is a long that fires only after a valid box, a higher-low filter, a close through the box high, and the attached volume gate are all true. The higher-low filter accepts the box only when its low is higher than the low printed twelve weeks earlier.

The coded breakout also requires a delayed-volume ratio. A recent four-bar average volume, lagged by a few bars, must exceed a stated multiple of an earlier four-bar average before the long is taken.

The box-stop exit is a sell that closes the long on a close back through the same box low used to define the entry channel. The consolidation floor is therefore reused as a trailing stop.

Risk is bounded before entry

Risk is bounded before entry by placing the stop at the low of a box formed during a four-week range or average-true-range squeeze. Equity-ticket sizing is the share-count rule that converts a starting ten-thousand-dollar ticket, which then tracks one percent of available equity, into shares at the current close.

A portfolio-exposure cap refuses book exposure above available capital. The stop, the ticket, and that ceiling are all set before the trade is placed.

A hard exposure ceiling

In the reported 100-name weekly book, simultaneous exposure stayed at or below half of capital, equivalent to at most fifty names, and fell to 10 percent and then to zero into 2008-2009. The same gates also produced a long stretch of abstention.