Trading strategy: Range Break-out

Description

Markets are either in a trend or in a sideways range. The Range Break-out strategy detects when a market is in a range. Once a range has been detected, a signal will indicate when the market breaks out of its range. A break-out in the direction of the trend is called a trend resumption. A break-out in the opposite direction of the trend is called a trend reversal.

 

   
Suitable for : Market indices (DAX, DOW, CAC...)
: Forex (EUR/USD...)
: Commodities (oil, gold...)
: Stocks
Instruments : Futures, CFD, forex and stocks
Trading type : Day trading and swing trading
Trading tempo : Variable
Using NanoTrader Full : Manual or (semi-)automated


The strategy in detail

The example below illustrates when a range and a break-out occurs:

 

This example shows a bullish market. At candle 1 a range is detected and drawn. The thin green borders indicate a range after a bullish trend. The platform will continue to draw the range, now in colour, until a break-out occurs. In this case a bullish break-out occurs at candle 2.

 

Parameters

The trader can choose the direction of the signal (with the trend, against the trend or both). He can also indicate during which periods he wishes to see signals and how he will be notified . In addition the trader can indicate if he wants only buy signals, short sell signals or both. All trading combinations are thus possible. Several examples are given below.

As usual all parameters can be set in the designer dialog or in the chart itself.

 

This example shows the relevant parameters in the designer dialog.

The first block is to set the distance of the price target. The target is set as a fraction or a multiple of the stop. If set to 1, the distance to the target and the distance to the stop are the same. The stop is placed automatically on the top (bottom) of the range.

The second block allows a choice of with/against/whatever the trend, signal times and signal alarms.

The third block allows a choice of only long signals, only short sell signals or both.

 

When to open a position?

The signals depend on the parameter settings. These are a few examples:

 

This example shows a trader who opted for "with the trend" and "go long" only. In the first range he receives a buy signal. In the second range the break-out is bearish. This is not a signal (no grey vertical line).



 

This example shows a trader who opted for "against the trend" and "go long" only. This results in two range break-out signals after downtrends.

 

When to close a position?

The Range Break-out strategy uses a target and a stop loss. These orders are placed automatically if the TradeGuard is activated. The stop loss is placed on the opposite side of the range. If, for example, the trader is long after a buy signal, the stop is placed on the bottom of the range. The price target can be set to a multiple or a fraction of the range.

Tip: in the account bar traders can see the return/risk ratio (RRR) of their open positions.

 

Conclusion

This is a simple and easy to understand break-out strategy suitable for trading trend continuation and trend reversal signals.The strategy can be used for all instruments and all time frames.

Practical implementation

Using the NanoTrader Full follow these steps:
  • Select the financial instrument you wish to trade.
  • Open the chart of the instrument.
  • Open a chart using the template study "WHS Range Break-out".
  • Adapt the settings as described above.
  • If you want to trade semi-automatically, activate TradeGuard+AutoOrder. If you want to trade automatically, activate AutoOrder.