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Breakout detection, false breaks and retests

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Start with the idea

A breakout compares a new observation with a boundary fixed before that observation. A buffer controls how far beyond the boundary counts.

Symbols, units & horizon

U_t: highest high of n prior bars in price units
H_(t−j): high j bars before t
C_t: completed current close
n: positive lookback count
k: nonnegative buffer in ATR multiples
ATR_(t−1): positive prior ATR
B_t: binary breakout flag
1{ }: one if the condition holds, zero otherwise

When and why to use this

Use breakouts as event labels or as a candidate continuation entry. Test the full exit, sizing and execution policy.

Use a prior high/low channel as the first reproducible boundary. Exclude the current bar from the lookback.
Define whether a break means a wick, a trade through the level or a completed close beyond it. These triggers have different information times.
Normalize a buffer by prior ATR or tick size. A larger buffer reduces signals but delays entry; it does not automatically improve net performance.
A close back inside the channel can define a failed breakout. Choose its maximum waiting time before examining outcomes.
A retest requires a later return to a predeclared zone and a specified acceptance/rejection rule. Trade only after the required confirmation.
Volume, spread, time of day and trend are candidate conditioning variables. Compare them through ablations rather than stacking indicators until the history looks attractive.
If a stop and target are both touched in one OHLC bar, use finer data or a documented conservative ordering.

U_{t} = \max_{1 \leq j \leq n} H_{t - j}, B_{t} = 𝟏 {C_{t} > U_{t} + k A T R_{t - 1}}

Specified chart rule · derivation and arithmetic

Breakout detection, false breaks and retests

Take the maximum of the prior highs only. For [100,102,101], U=102.
Compute the buffer: k=.5 and prior ATR=2 add 1 price unit.
The boundary is 103. Close=103.2 passes a strict greater-than rule; close=103 does not.

Work it by hand

Excluding today prevents its high from moving the very boundary that the close must beat. A valid flag is available only after the selected closing observation.

Use the rule

Fix the definition, units and information timestamp.
Compute the example and inspect the graph.
Compare with a simple baseline on untouched periods after costs.

Before moving on

Write the exact rule, its availability time, an invalidation condition and a fair out-of-sample test.

Research context: review the related evidence checkpoint. The numerical convention here defines a candidate feature; that related research does not validate this exact rule.

Python implementation

Self-contained teaching example. Python 3.10+; dependencies and input conventions are shown in the code and notation. Run in your own Python environment.

def breakout(prior_highs,close,prior_atr,buffer=.5):
    if not prior_highs or prior_atr<=0 or buffer<0: raise ValueError("Prior bars, positive ATR and nonnegative buffer required")
    boundary=max(prior_highs)+buffer*prior_atr
    return boundary,close>boundary

print(breakout([100,102,101],103.2,2))

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