An interesting method?

Internat2002rafalolbinskiI was going over Van Tharp’s book, which is a must have, – to present it to you guys in a future post; when I ran into a very simple volatility breakout method in page 3, and I couldn’t resist posting it.

I think this would be a nice method to trade ESs and NQs.

Basically, determine yesterday’s true range (YTR), its high minus low plus any gaps to the extremes of the day before yesterday, – this is where the “true” comes from.

Bracket today’s opening (TO) with two stop orders:

The first, to buy at
TO + (0.4 * YTR);

the second, to sell at
TO – (0.4 * YTR).

I would filter my entry with a George Taylor day sequence outlook: buy, sell, short sell day. So, after a sell day, I would not take the buy order, nor would I take a sell order after a short sell day.

(For those who don’t want to buy the book see my next post on Taylor’s method)

I would consider the trade to be a failure if it back-tracked into yesterday’s close; so I’d place my stops, after executing my entry order, at YC – (0.1 * YTR) or at YC + (0.1 * YTR), for the buy or sell entry orders, respectively.

If the trade goes well, I would move my stop to breakeven at 1:30 PM.

In regards to profit exits, I would take my chips off the table on a 5 day EMA crossover, – to let it run a little.

Caveat emptor: I like the looks of the method, I will be back-testing and paper-trading it; but, I have no supportive data to tell me it will work.

I strongly recommend not trading it!

I’ll be following up on my progress.

Happy trading guys!