CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Histo Breakout trading strategy

Trader David Pieper’s strategy

The Histo Breakout strategy is developed and used by trader David Pieper. David Pieper published the strategy and his research in an article in the Traders’ Magazine. The strategy calculates historic volatility values. The values are used to trade when the market breaks out of a price range.

Suitable for : All markets
Instruments : Futures, CFD-Forex, stocks
Trading type : Day trading and swing trading
Trading tempo : Variable
Using NanoTrader Full : Manual or (semi-)automatic

The strategy in detail

Trading breakouts from price ranges with low volatility is not new. As a matter of fact, many well-known traders have breakout strategies as they tend to be a good source of profits.

David Pieper’s Histo Breakout strategy uses the Historic Volatility Ratio to determine when volatility is low. The ratio is combined with candlestick patterns to determine if the market is in a price range.

This example shows the Historic Volatility Ratio (HVR). For volatility to be considered low it needs to be below 0,5.

The Historical Volatility ratio HVR.

Free trading platform demo

In his article David Pieper focuses on weekly, daily and hourly charts. We have tested the Histo Breakout strategy, and it would appear the strategy works equally well in smaller time frames.

When to open a position?

In addition to low volatility (HVR < 0,5) one of these two candlestick patterns must appear:

  1. An inside bar candle. David Pieper defines this as a candlestick whose body lies within the range of a preceding candlestick.
  2. A narrow range candle. David Pieper defines this as a candlestick whose range is smaller than the ranges of the three preceding candles.

Tip: In the Designer Dialog you can choose both these patterns or only one for your trading signals.

The candle, which meets these criteria, is called the signal candle.

  • A buy signal occurs when the market price closes above the high of the signal candle.
  • A short sell signal occurs when the market price closes below the signal candle.

The signals must occur within four candles after the signal candle. Traders can change this setting.

Trading examples

This example shows a buy signal. The volatility ratio is low (< 0,5). The signal candle, indicated by the blue background, is an inside bar candle. The breakout occurs upwards, and within four candles.

A buy signal in this free breakout trading strategy.

This example shows a short sell signal. The volatility ratio is low (< 0,5). The signal candle, indicated by the blue background, is an insider bar candle. The breakout occurs downwards, and within four candles.

David Pieper's free trading strategy based on volatility does a short sell.

Free trading platform demo

When to close a trading position

The Histo Breakout strategy uses a profit target and a stop loss. The stop loss order is placed on the low (high) of the signal candle. The profit target is 2x the initial risk.

An optional trailing mode can be activated for the stop loss order. This can be done in the Designer Dialog. The trailing stop loss will move to the trader’s break-even level once the profit is equal or above the initial risk.

This example shows a buy signal. The initial stop order (red line) is automatically placed on the low of the signal candle. The market goes up and the trader starts to make a profit. When the profit surpasses the initial risk, the stop loss order is moved to the break-even level. The trader can no longer lose money. The profit target (green line) is not reached. The market turns, and the position is stopped out.

Automated trading with NanoTrader's stop loss and trailing stop loss orders.

This example shows a short sell signal. The initial stop order is automatically placed on the high of the signal candle. The market goes down and the trader starts to make a profit. When the profit surpasses the initial risk, the stop loss order is moved to the break-even level. The trader can no longer lose money. The position is closed when the profit target is reached.

A profitable trading strategy? The profit target is reached.

Free trading platform demo

Practical implementation

Using the NanoTrader Full follow these steps:

  • Open a chart of the instrument you want to trade.
  • Select the template study "WHS Histo Breakout” in the "WHS Strategies" folder.
  • If required, adapt the parameters as described above.
  • To trade semi-automatically, activate TradeGuard+AutoOrder in the chart. To trade automatically, activate AutoOrder in the chart.