IWM Small Cap Momentum

## IWM Small Cap Momentum — Full Methodology

### Consolidation Detection

1. **Range identification:** IWM trading range (high − low) over the last 20 days must be < 5%

2. **Bollinger Band squeeze:** BB width (20, 2σ) in the bottom 25th percentile of the last 60 days

3. **Relative underperformance:** IWM must have underperformed SPY over the trailing 60 days (catch-up potential)

### Entry Criteria

1. IWM closes above the 20-day high (breakout)

2. Volume on breakout day ≥ 1.5× the 20-day average

3. Russell 2000 advance/decline line is rising (breadth confirmation)

4. Enter long at the breakout close

### Exit Rules

- **Profit target:** 8% from entry (small-cap rallies tend to be explosive but short-lived)

- **Stop loss:** 3% below the breakout level (gap back into the range = failed breakout)

- **Trailing stop:** 4% below the highest close after reaching 5% profit

- **Time stop:** Exit after 30 trading days

### Position Sizing

- Risk 1% of portfolio per trade

- IWM is more volatile than SPY — smaller position sizes recommended

### Best Market Conditions

Works best at the start of Fed easing cycles (small-caps are rate-sensitive) and during risk-on rotations after market corrections. The late 2023 small-cap rally was a textbook signal. Underperforms in risk-off environments where capital flees to large-cap safety.

### Backtest Notes

Tested on IWM daily bars from Jan 2016 to Dec 2024. Small-cap breakouts have lower win rates than large-cap but higher magnitude when they work. The relative underperformance filter is key — it ensures entry only when catch-up potential exists.