Range Compression Expansion Strategy

What This Strategy Focuses On

Markets don’t move randomly all the time. They often alternate between quiet phases (low volatility, tight candles) and expansion phases (strong directional moves).
This strategy is built around that idea. It identifies periods where price is compressed into a tight range and waits for a confirmed breakout before entering a trade.

How It Works

1. Detecting Compression
The script measures volatility using ATR.

• When ATR drops below its recent average, the market is considered compressed
• This usually means price is building up for a move Instead of relying on indicators like Bollinger Bands, this uses pure volatility contraction + price structure

2. Defining the Range
During compression, the script tracks:

• Highest high (resistance)
• Lowest low (support) This creates a clear structure zone.

3. Expansion Breakout
Trades are triggered when price breaks out of that range:

• Break above range → potential bullish expansion
• Break below range → potential bearish expansion Only confirmed breakouts are considered.

4. Risk Management

• The strategy uses ATR for exits:
• Stop-loss adapts to volatility
• Take-profit is based on a fixed risk-to-reward ratio This keeps behavior consistent across different markets.

Key Characteristics

• Focuses on volatility shifts (calm → expansion)
• Uses structure instead of indicator-heavy logic
• Works on crypto, forex, and stocks
• Designed for testing and refinement

When It May Work Better

• Before strong trending moves
• During breakout phases
• After long consolidation periods
• It may produce fewer signals in already trending markets.

Important Note

This script is for testing and educational use. Results depend on market conditions and settings. Always test across multiple assets and timeframes.

If you want to push this further

• You can upgrade this idea by adding:
• trend filter (EMA or HTF bias)
• volume spike confirmation
• session-based filtering
• fake breakout detection

Pine Script v6 Strategy Code

//@version=6
strategy("Range Compression → Expansion Strategy", overlay=true, initial_capital=100000, default_qty_type=strategy.percent_of_equity, default_qty_value=5, commission_type=strategy.commission.percent, commission_value=0.05, slippage=1)

// ───── INPUTS ─────
lookback      = input.int(20, "Range Lookback")
atrLen        = input.int(14, "ATR Length")
compressionTh = input.float(0.7, "Compression Threshold (ATR Ratio)")
atrMult       = input.float(1.5, "Stop ATR Multiplier")
rr            = input.float(2.0, "Risk Reward")

// ───── VOLATILITY ─────
atrVal = ta.atr(atrLen)
atrAvg = ta.sma(atrVal, lookback)

// Compression condition
isCompressed = atrVal < atrAvg * compressionTh

// ───── RANGE STRUCTURE ─────
rangeHigh = ta.highest(high, lookback)
rangeLow  = ta.lowest(low, lookback)

// ───── BREAKOUT LOGIC ─────
breakUp   = ta.crossover(close, rangeHigh[1])
breakDown = ta.crossunder(close, rangeLow[1])

// Entry conditions
longCondition  = isCompressed[1] and breakUp
shortCondition = isCompressed[1] and breakDown

if longCondition and strategy.position_size == 0
    strategy.entry("Long", strategy.long)

if shortCondition and strategy.position_size == 0
    strategy.entry("Short", strategy.short)

// ───── RISK MANAGEMENT ─────
longStop   = strategy.position_avg_price - atrVal * atrMult
longTarget = strategy.position_avg_price + atrVal * atrMult * rr

shortStop   = strategy.position_avg_price + atrVal * atrMult
shortTarget = strategy.position_avg_price - atrVal * atrMult * rr

strategy.exit("Exit Long", from_entry="Long", stop=longStop, limit=longTarget)
strategy.exit("Exit Short", from_entry="Short", stop=shortStop, limit=shortTarget)

// ───── VISUALS ─────
plot(rangeHigh, title="Range High", color=color.green)
plot(rangeLow, title="Range Low", color=color.red)