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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.
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:
- An inside bar candle. David Pieper defines this as a candlestick whose body lies within the range of a preceding candlestick.
- 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.
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.
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.
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.
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.
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.