Are you adding stop loss and profit target to the volatility burst strategy?
Updated: May 30
Although there are several trading concepts to choose from, the burst strategy cannot be left behind.
Taking a position in a trend’s early stages at the right time, and having a limited downside risk make this strategy a great pick!
So, here’s the Trade Setup for the Volatility Burst Strategy:
Volatility = ATR of the last 20 Days
High & Low Vol = Highest High & Lowest Low of Volatility in last 252 Days
Historical Volatility Rank (HVR) = Volatility – Low Volume / High Volume – Low Volume * 100
Upper Band = Highest High of High over the last 50 Days
Lower Band = Lowest Low of Low over the last 50 Days
Go Long or Cover – When
HVR < 10
Close > Upper Band
Close > Open
Close – Minimum of Open and Previous Close > Volatility
Exit Long or Short – When
IVR < 10
Close < Lower Band
Close < Open
Maximum of Open and Previous Close - Close > Volatility
It’s a bit more complex than the previous ones, but it does show promise.
Back-test reports of the Volatility Burst Strategy show that its Annual Return Percentage is 28.47%. And this is what the equity curve looks like -
As you can see, it’s important to take a position at the right time. But it’s also important to know how to exit when you’re losing. Let’s take a look at the drawdown curve to see what sort of stop loss would work the best? Thoughts?
The drawdown graph of the Volatility Burst Strategy shows the maximum loss incurred.
The next step? We’re going to add a trailing stop loss and see what happens next.
With a few changes in the system, we’ve been able to add a trailing stop loss parameter. Check out the changes in curves after this alteration!
Do you think a percentage-based stop loss, or a point-based stop loss would have made more sense? Share your thoughts in the comments section.
Like always, we added a target profit parameter to our basic strategy. The results look exciting. Here are the curves from the back-test –
One look at the differences tells you that we’ve improved by a lot. Even the CAGR has increased to 52.64%. Wonder if adding a stop loss and a target profit at the same time would have helped…
Do you also have any trading ideas you’re thinking of back testing? Or need help with universe selection? Write to us at firstname.lastname@example.org with your query or call/Whatsapp on +91-9321136466