Volatility Breakout - Setup

Discussion in 'Strategy Development' started by FaderTrader, Jan 30, 2006.

  1. Hey guys,

    Someone posted on this site last week that Vol Breakouts are high-profit setups. I couldn't agree more. In terms of how I trade:

    FX: I wait for a strong Volatility breakout and look for attenuation of the move. I then set a wide stop and look to take the opposite side of the most recent move.

    Equities: I trade thin, expensive stock (AHC, PD, SLB) and I look for a sharp vol breakout and safety in the NYSE Open Book.

    My problem: Too few intraday opportunities. I'm so used to trading the same stock (I mostly trade AHC) that I don't really have a way to look at a brand new stock and understand what would be a vol breakout for that particular stock. I'm pretty confident in my ability to sense attenuation, but does anyone here have a single indicator that they use to filter for this? I'd like to expand my universe of stocks utilizing a more systematic volatility breakout/fading strategy.

    I know, longshot asking this. Thanks though!
  2. achilles28


    I use a similar strategic setup for trading fx; exploiting the 'calm before the storm' effect.

    My position sizing is inversely proportionate to volatility before entry. The lower the volatility (flatter the market) the more i put on when i get a trigger.

    How i measure 'volatility' prior to the move is a trade secret ;) Its actually pretty simple.

    Can you design your own indicator to measure the behavior yourself?
  3. My strategy in FX, which I feel is more prone to swing trading due to the absence of opening gaps, takes the opposite side of the most recent volatile move as I feel it's attenuating. I look for volatility to leave the market. I set a wide stop and looking for a retracement.

    It never ceases to amaze me how many traders think that an obviously attenuated move with will persist and not reverse.
  4. Connors-Hayward
  5. achilles28


    Interesting to know who might be taking the other side of my trade.

    I don't pretend to be batting 1.000% More like 25 - 30% - which is far to low for some people.

    But the wins make up for the losses and the style fits my psychology, so im happy.
  6. achilles28


    I follow your work with great interest. In fact, your posts helped me perfect my exit strategy - trendlines on a higher time frame.

    May I ask who is Connors Hayward?
  7. cnms2


  8. fx4fun


    Hi Fader,

    I am working on trading systems for the FX markets and I want to setup a system for fading. I followed your threads on the other forum and was sorry to see you go.
    My thought was to use Average true range to determine that a large move has happened, but how would you define when a move is attenuating?

  9. achilles28


    #10     Feb 15, 2006