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Are you adding stop loss and profit target to the volatility burst strategy?

Updated: May 30, 2020

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 contact@arque.tech with your query or call/Whatsapp on +91-9321136466

#backtobasics #trading #algotrading #backtesting #volatility #indicator #optimization #stoploss #profit #equity #drawdown #tradingstrategies #stocks #indianstockmarket #volatilityburststrategy

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