Index Vol Breakout Systems

Avarus is correct, it is in the momentum.

I run volume charts so I am not certain what he means by volume, simply because there is no shortage of it at the open.

You may need to preload limit stops as it is all a bit busy around the open and flatten them if you do not like the action.

I would suggest going for a points target with a bracket trade.

regards
f9
 
Actually, the OP said that he is looking for an intraday breakout system.

I have been researching automated, high frequency systems recently. So far I have been coming up empty-handed. I have studied both breakout, momentum, and mean-reversion approaches mostly in shorter timeframes. I would happily settle for a low-frequency system, but I believe the fewer trades an approach has, the less reliable are the test results.

By the way, I tested an ORB system a few years ago, and it appeared to make pretty good money. Unfortunately, the equity swings were beyond my risk tolerance.

[rwk]
 
"mean reverting in nature"

Ummmm, I don't want to overstep my bounds since I do not trade mechanically nor do I trade in any martingale type strategy...but mean reverting seems to be one of those, oh, let's say kamakaze type strategies.

I would hope that you have a strategy to get rid of the "stragglers" or the trades which don't come back. And also, I would be extremely careful of the catastrophic trade ---the investment markets have much fatter tails than the normal distribution curve.

Good luck. It is absolutely opposite of my own strategy so i guess i'm not much of a help, lol.

Quote from RhinoTrader:

Hi guys - does anyone out there trade an intraday volatility breakout system on the eminis? I have been toying with a few ideas and here are some of my thoughts:

ORB style breakouts don't work. I have back-tested a number of varieties incl time-based (30 mins, 60 mins, etc) and pure vol (eg ATR) breakouts and various exits (trailing stop, exit at close, etc etc). On their own these strategies (no-longer) work despite some of the hype around them. I'm sure this is not news to most of you.

I am not suggesting that this type of breakout cannot be used as a component in a system. But it represents little more than an entry trigger. A setup is also needed - perhaps a struture on a larger timeframe (daily) to give us a directional bias or filter the low vol days. Indeed, I have a setup / breakout system that I use in the Bonds and an old model (out of production) that trades the European indices.

I am interested in generating a discussion regarding vol breakout intraday strategies. My interest is in a pure mechanical approach - zero discretion (this is how I trade). I already have models trading the indices but mostly these are mean-reverting in nature. Anyone out there want to share any thoughts either on or off-line?

Cheers
Mike
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Quote from avarus:

Rhino-

Now if we could only figure out which breakouts to pass on. Would be nice, until then cut your losses ride your winners. With geometric progression (position sizing) and proper risk control, victory is almost a mathematical certainty even with a batting average as low as 30%. Is there such a thing as 100%? Haven't found it yet, but continual R&D is part of any successful business.
Looking at volume and momentum will help filter out the fakes to an extent.

best
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Thanks for the thoughts. Ride winners, cut losers can be good advice but it is not all that is needed in this case. Also, on posiiton sizing, if I am reading you correctly (increase positions after a loser? or after a trade is on-side?) - position sizing is clearly important but first I want to see a bsic entry/exit combo with a decent edge. i.e. the core of the system must make money on its own, then I add position sizing to maximise gains.

Your last comment is of most interest to me - ways to filter out some of the whippy days. What do you look at in terms of momentum (i.e. is it momentum on a higher time-frame or are you looking for a strong imulse move on (eg) 1m charts)?
 
You guys do realize that ORB is not a volatility breakout system. :cool:

Yes, there are some occassions where there's an overlapping of a few signals from a volatility breakout system with a range breakout system.

In fact, a true volatility breakout will often occur prior to a range breakout.

Yet, as mention, there will be times (not often) when a volatility breakout occurs at the same time as a range breakout signal.

Further, a range breakout system will do poorly in low volatility market conditions whereas a volatility breakout system will perform better in low volatility market conditions and much better in rising volatility market conditions in comparison to a range breakout system.

In addition, a volatility breakout system will allow you to better manage your position size (change size when volatility chages) in comparison to a range breakout system.

Mark
 
Here a link to part of my video on Opening range breakout. It covers the work of Crabel,Williams and Knight.

First part is available for watching , part 2 requires you to register on TradersStudio.com which is free. Another 60 minutes of video is only available if you buy the video. At least you can watch 20 minutes of info on this subject for free.

http://www.tradersstudio.com/Tutorials/OpeningRangeBreakoutVideo/tabid/129/Default.aspx
 
Quote from RhinoTrader:


indrionas - thanks for the response. yes, I know about crabel's book, although have never read it. my investigations have carried me to look at some of his suggestions though - all the classic stuff like IDs, NR4, NR7, etc etc. Whilst Crabel's study showed that these filters used to be effective, my own studies show that their effectiveness has been hugely diluted (no surprises there). my intention was to explore some other ideas with some like-minded strategy developers. do you still trade an adapted vol breakout strategy?
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No, currently I do not trade volatility breakout, but it's in my to-do list. What Crabel's writing means to me is proof that you can trade intraday breakouts filtered by short-term price patterns. I'm certain that his patterns don't work nowadays because they're outdated -> markets change.

My current development is range extension breakout strategy, and I'm on the verge of completing it. I think the path to success with breakouts is to trade a few uncorrelated breakout strategies, risking only a little part of a percentage of your capital for each, thus avoiding large drawdowns. Also, it is very important to track your results, so you can stop trading deteriorating strategies, before they become completely obsolete.
 
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