Trading strategy: Larry Williams Volatility Break-out
Description of this Larry Williams strategy
The L.W. Volatility Break-out strategy was developed by Larry Williams, a trader in the U.S. and the author of several trading books. Volatility Break-out strategies are based on the concept that if the market makes a movement of a certain size in a short period of time, this movement will continue for some time. The L.W. Volatility Break-out strategy is suitable for all instruments and is traded on a 5-minute chart.
|Designed for||: Market indices (DAX, DOW, S&P 500 ...)
: Forex (EUR/USD ...)
: Commodities (oil, gold ...)
|Instruments||: Stocks, CFDs, Forex and Futures
|Trading type||: Day trading and scalping
|Trading tempo||: Usually 1 signal per day
|Using NanoTrader Full||: Manual and (semi-)automated|
|Budget||: FREE trading strategy in NanoTrader|
The Volatility Break-out strategy in detail
The L.W. Volatility Break-out strategy bases itself on the highest price and the lowest price of the previous trading day. These prices are multiplied by 0,25 and added to and subtracted from the opening price. This results in Larry Williams’ break-out range.
This example shows the Larry Williams break-out range.
When to open a position
When the market price goes above Larry Williams’ break-out range, a long position is bought. When the market price drops below Larry Williams’ break-out range, a short sell position is opened. Positions can be opened manually or automatically. The strategy contains alarms (pop-up message, sounds or e-mail) which can warn the trader when a signal occurs.
When to close a position?
The L.W. Volatility Break-out strategy uses a profit target and a stop loss order. In addition there is a time filter.
The profit target and the stop loss
The profit target order and the stop loss order are both placed at a distance from the entry point which is a multiple of the Larry Williams break-out range. The default setting for both the profit target and the stop is 2x the size of the break-out range. This results in a Return/Risk ratio of 1.
The time filter
If the position has not reached the profit target or has not been stopped out by 21.59 hours, the time filter will automatically close the position. Note: for the target order, the stop loss order and the time filter to work automatically, the trader must activate the TradeGuard in the chart.
This example shows a buy signal. The market is up, but not sufficiently to reach the target order (green line). The market starts to drop and the stop loss order (red line) is reached. The position is closed with a loss.
This example shows a short sell signal. The target order (green line) is reached. The position is closed with a profit.
This example shows the time filter in action. The market price does no reach the target order (green line). The time filter closed the position at 21h59.
Is this strategy profitable
Volatility break-out strategies tend to perform well in a volatile or a directional market. They tend to suffer when the market moves sideways or when volatility is low. Adding a trend filter (SuperTrend, EMA ...) and a volatility measure (ATR ...) can increase the performance of break-out strategies.
These examples show back-tests for the standard Larry Williams Volatility Break-out strategy over several years. The profits are variable but none are negative.
Adapting the strategy to your needs
The trader can change several parameters in the strategy. The parameters are easy to change in the DesignerBar or even directly in the chart.
|StartTime||: Opening price based on which the Larry Williams
break-out range is calculated. For U.S. markets put, for
example, 1430 or 1530
|MaxLongPerDay||: Indicate the maximum number of long signals you want
during the day
|MaxShortPerDay||: Indicate the maximum number of short sell signals you
want during the day.
|Range_factor_Stop||: Indicate the distance of the stop order. Here 2x the
|Range_factor_Target||: Indicate the distance of the target order. Here 2x the break-out range.|
In NanoTrader follow these steps:
1. Open the chart of the instrument you want to trade.
2. In the WHS Strategies folder, select the "WHS L.W. Volatility Break-out" strategy.
3. Adapt the settings if required.
4. Semi-automated trading? Activate TradeGuard+AutoOrder. Automated trading? Activate AutoOrder.