My ATR Strategy Explained with a Historical TNET Case StudyTriNet Group, Inc.BATS:TNETAsgeirS- TNET is presented as a historical case study to demonstrate how the rules work in practice. This is not a current TNET trade setup or recommendation. - Big Gains by a Small Man – A Rule-Based Stock Selection and ATR Strategy I am a private investor, and over time I have tried to develop a relatively simple approach to a difficult problem: How can I find stocks with the potential for large gains without trying to predict exactly where the market will go next? My answer has been to combine fundamental stock selection with price momentum, Average True Range (ATR) and strict rules for entries and exits. I call the approach: Big Gains by a Small Man. The philosophy behind it is simple: I do not try to predict. I wait for the market to confirm. This post explains the complete method. TNET is included as a historical case study to demonstrate how the rules work in practice. It is not a current trade recommendation. 1. The Starting Point: Fundamental Selection My starting universe comes from the principles behind Magic Formula Investing. I concentrate on companies with a market capitalization of approximately: $300 million to $8 billion. The purpose is to identify reasonably attractive businesses while concentrating on smaller and medium-sized companies where substantial price movements are still possible. I normally reassess the fundamental selection annually. I then apply my own price-based rules to determine which stocks actually qualify for a trade. 2. Two Types of Stocks Interest Me After the fundamental selection, I divide potential candidates into two very different groups. Setup A – The Breakout The first group consists of stocks that have already demonstrated substantial strength. I look for a stock that has: Doubled or more during the previous three years and subsequently approaches or establishes a significant new high. However, reaching the previous high is not enough for me. I want additional confirmation before entering. My rule is: Entry signal = previous significant high + 2 ATR The purpose is to reduce the risk of buying a false breakout. I am deliberately willing to buy somewhat later in exchange for evidence that the stock has genuine momentum. Setup B – The Recovery The second group is almost the opposite. I look for stocks that have: Declined at least 50% during the previous three years. But I do not try to catch the bottom. A stock can always fall further. Instead, I wait until a significant bottom has been established and then require substantial upward movement before considering an entry. My rule is: Entry signal = significant bottom + 4 ATR This is deliberately a much stronger confirmation requirement than in the breakout setup. A stock recovering from a major decline has to prove to me that something has genuinely changed. 3. Why I Use ATR ATR – Average True Range – is central to the strategy. I use ATR(14) as a measure of the stock's volatility. The important point is that I do not continually recalculate the reference ATR when determining a particular signal. For the recovery setup, I take the ATR(14) value from the date of the significant bottom. That ATR value becomes fixed for the calculation. For example: Bottom + (4 × ATR at the bottom) determines my recovery entry signal. This makes the threshold relative to the normal volatility of the individual stock rather than using an arbitrary percentage. The same principle is used when protecting profits, but in the opposite direction. When a significant new peak is established, I record the ATR(14) at that peak. The protective level is then: Peak − (2 × ATR at the peak) This ATR value is also fixed from the reference date. 4. Historical Case Study – TNET TNET provides a useful real-world example of the recovery setup. The stock had suffered a substantial decline and eventually established the bottom I used for the calculation at: $34.63 At the bottom, ATR(14) was approximately: $1.91 According to my recovery rule: $34.63 + (4 × $1.91) = approximately $42.27 Allowing for the exact ATR reading and rounding used at the time, my practical entry signal was approximately: $42.20 The important point is not whether the threshold is $42.20 or a few cents higher or lower. The important point is that I did not attempt to buy TNET at $34.63. I required the stock to rise approximately 4 ATR from its bottom before I was prepared to enter. That is the confirmation principle at the heart of the strategy. 5. The Actual TNET Trade My actual entry was: April 29, 2026 – $42.90 At this point, the 4 ATR recovery condition had been satisfied. The stock subsequently continued substantially higher. Rather than setting a predetermined profit target, I allowed the position to continue as long as the price action remained strong. This is another important part of the method: I want to cut unsuccessful trades relatively quickly, but I do not want to put an artificial ceiling on successful ones. 6. Protecting a Large Profit Once a position has generated a gain of at least 50%, my focus changes from ordinary risk control toward protecting a substantial winner. I monitor the highest level subsequently reached and record the ATR(14) associated with that peak. One of the key conditions I use for an exit is a decline of approximately: 2 ATR from the peak using the ATR value recorded when that peak was established. In the TNET example, this mechanism eventually produced the exit. My actual sale was: July 31, 2026 – $65.80 The result from the actual purchase and sale prices was: Entry: $42.90 Exit: $65.80 Profit per share: $22.90 Return: +53.4% This is a historical example of how the methodology operated. It should not be interpreted as evidence that the same setup will produce a similar result in another stock. 7. What the TNET Example Really Demonstrates The most important part of this example is not the 53.4% return. It is the sequence of decisions. First: I did not try to identify the exact bottom. Second: I required a 4 ATR recovery before entering. Third: once the stock continued higher, I allowed the winner to run rather than setting an arbitrary profit target. Fourth: after a substantial profit had developed, ATR was used again – this time to identify meaningful deterioration from the peak. In other words: ATR determined both when the recovery had become strong enough to interest me and when the subsequent decline had become large enough to make me leave. 8. Risk Management Not every stock that moves 4 ATR from a bottom will become another TNET. Far from it. That is why the strategy also needs a mechanism for failed trades. After entering a position, my normal risk limit is based on approximately: 2 ATR but I also impose a maximum initial loss of approximately: 12.5% If the ATR-based risk would imply accepting a larger percentage loss, the percentage limit takes precedence. I accept that this will sometimes remove me from a position that subsequently recovers. That is unavoidable. The objective is not to avoid losing trades. The objective is to prevent individual losing trades from becoming disproportionately damaging while retaining the possibility of much larger winners. 9. The 50% Rule There is another important feature of my approach. If a stock selected for the strategy has failed to produce at least a 50% return within approximately one year, I no longer regard it as fulfilling what I am looking for from this strategy. The objective is not simply to own inexpensive companies indefinitely. I am specifically looking for stocks capable of substantial price appreciation. This rule therefore acts as both a performance requirement and a discipline mechanism. 10. The Strategy in Simple Form The entire process can be summarized as follows: Stock selection Use fundamental criteria to create a universe of smaller and medium-sized companies, approximately $300M–$8B in market capitalization. Breakout candidates Stocks that have doubled or more during the previous three years. Entry confirmation: Significant high + 2 ATR Recovery candidates Stocks that have declined at least 50% during the previous three years. Entry confirmation: Significant bottom + 4 ATR ATR measurement Use ATR(14) from the actual reference point – the significant high or low – and retain that value for the corresponding calculation. Initial risk Approximately 2 ATR, subject to a maximum loss of approximately 12.5%. Large winners Once substantial profits have developed, allow the position to run while monitoring deterioration from the latest significant peak. Profit protection Use ATR(14) from the peak and watch for a decline of approximately 2 ATR, together with the strategy's profit-protection conditions. 11. Why I Prefer Rules to Predictions I cannot know which stock will be the next major winner. Neither can I know whether the market will be higher or lower six months from now. So I try to avoid building a strategy that requires me to know those things. Instead, I ask the market for evidence. A deeply depressed stock must demonstrate a significant recovery before I buy it. A breakout must move sufficiently beyond its previous high. A losing position is not allowed unlimited time or unlimited capital. And a strong winner is allowed room to continue until its behavior changes enough to trigger my rules. This makes the approach less dependent on my opinion at any particular moment. Big Gains by a Small Man The name is deliberately simple. As a private investor, I do not have the research departments, information systems or resources available to major institutions. But a small investor does have some advantages. I can wait. I can concentrate on a relatively small number of opportunities. I do not have to own a stock simply because it is part of an index. And when one of my rules tells me that a trade no longer makes sense, I can leave. For me, the purpose of this strategy is therefore not to outsmart the market. It is to create a repeatable framework for participating when the market itself starts showing the characteristics I am looking for. Select carefully. Wait for confirmation. Control the downside. Give the winners room to run. That is the basic idea behind Big Gains by a Small Man. The TNET trade shown here is a historical case study used solely to explain my methodology. It is not a current trading signal or recommendation. This post describes my personal trading approach and should not be considered investment advice. Trading and investing involve risk, and past results do not guarantee future performance.