phase-3-the-retracement
Length: 15-25 minutes (according to chatgpt)
A. Retracement Part 1 – BB Midline Snapback
Characteristics:
- Entry is just after Shock Dissipation (our previous section).
- Price bounces from the cascade low up to the BB midline.
- ATR: clearly dropping from the spike, but still elevated vs pre-shock.
- RSI: recovers to around 50 (neutral, pressure normalized).
- MACD: histogram has that reverse-plateau shape and starts to curl up, lines are separating from the extreme.
Interpretation:
- This is the mechanical reversion to the local mean.
- Roughly half of the “volatility surplus” (ATR) is gone.
- System has gone from “panic” → “neutral, slightly heavy”.
This is a very reasonable place for:
- Partial profit or
- Tightening stop if you sized aggressively at the shock bottom.
B. Retracement Part 2 – VWAP Magnet
Then we get a second leg higher:
- BB width: has narrowed; volatility is compressing.
- MACD: lines move toward a cross / convergence, histogram mostly positive but flattening.
- ATR: still drifting down; about half of the extra spike has now decayed.
The trigger is a bit harder to identify (and i havent done studies to calrify how often this contraction will break with the retracement vs. against it (which in this case is in line with higher TFs(downtrend)))
- Price pushes from BB midline → session VWAP.
At the VWAP touch:
- RSI: near 70 (short-term overextension in the opposite direction).
- ATR: doesn’t drop much right there, but continues drifting down afterward.
- Price has fully mean-reverted to the session anchor (VWAP), not just the BB midline.
Interpretation:
This is the ideal exit for the shock-retracement long.
- You rode the move from panic → BB midline → VWAP.
- You exited at the “fair value” anchor while volatility is still elevated enough that continuation is uncertain.