Why are volatility breakouts dangerours to trade now..

Discussion in 'Strategy Development' started by pbw, Feb 6, 2006.

  1. pbw

    pbw

    I attended a brief seminar with Robert Deel (anyone heard of him? --comments) ---

    he was saying that volatility breakouts no longer work now --and compared trading VB's to putting your head in a guilotine.

    Unfortunatley he did not explain in detail as the room was packed with people and he had a lot to cover.

    I think he was suggesting that VBs are old news now and these quick spikes also quickly reverse. As a trading stratedgy it is now a risky one.

    Comments appreciated --
     
  2. doublea

    doublea

    How about fading VBs.
     
  3. Hire somebody to put it into computer software and test it. You could even test "the old days" (whenever Robert Deel says that the VB method was profitable) versus "now".
     
  4. he obviously has no idea how to differentiate correct breakouts from incorrect ones then


    You can't just put on some volatitlity indicator and trade off it, you need to know whats creating the volatility.
    And is the volatility normal or too much
     
  5. Hi pbw,

    Here's my thinking...market don't trend all the time.

    In fact, most of the time its in some sort'uv congestion or range bound price action.

    With that said, volatility breakouts (ones that don't retrace soon after the breakouts) will be the start of those trends.

    Therefore, if using a volatility breakout methods...you need to understand the following:

    * When they are most likely to occur (you don't need to know the exact minute).

    Hint: Supply/Demand and Market Seasonal Tendencies

    * Know their weakness and be prepared to exploit their weakness via either taking fast profits, reversing your position into the opposite direction of your original trade or position size management via reducing your position size to control your risk exposure when trading VB's in non-trending environments.

    Hint: For fading...divergence does the trick very nicely

    Simply, I personally think why trading via volatility breakout methods is so difficult is that most traders either don't understand or underestimate the two hints mentioned above.

    Just my take eventhough i don't know who Robert Deel is.

    Thus, you can exploit volatility breakouts via knowing when to trade them and when to fade them.

    However, only concentrating on one side of the coin of a volatility breakout may be as Robert suggested...

    Putting your head on the chopping block.

    Mark
    (a.k.a. NihabaAshi) Japanese Candlestick term