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Try This.
1) Create an Indicator named: "Entry-Signal"
Put your entry signal of choice into it. You need this because
stops are set relative to the
entry signal (kind of obvious, but MSWin doesn't really think like
this...)
In case you just want something quick, here's a 9-21ema crossover.
just as a sample. You can change it later to suit your system.
-----------------
Cross(Mov(C,9,e), Mov(C,21,e))
-----------------
2) Create an Indicator named: "Stop-ATR Ratchet"
Paste the following code into it.
------- Start - Cut and Paste -------------------
{Trailing Stop based on ATR Ratchet concept}
{Be sure to set Entry signal is this indicator}
SIGNAL:=Fml("Entry-Signal");
HoldBars := Input("Delay before Ratchet", 0, 20, 10);
RatchetFactor := Input("Acceleration", .01, .10, .02);
ATRval := Mov(ATR(1),10,E);
{Assumtion (Conservative): Entry at High of bar
to calculate Profit Target}
ProfTarget := ValueWhen(1, SIGNAL, H + ATRval);
TradeBars := BarsSince(SIGNAL);
RatchetBars := Max(0, TradeBars - HoldBars);
{ Entry Stop - hold until ProfTarget reached
I used highest of: Lowest 10-day low and L-3ATR}
EntryStop := ValueWhen(1, SIGNAL,
Max(LLV(L,10), L-3*ATRval) );
TrailStop := LLV(L,10) + ATRval*TradeBars*RatchetFactor;
STP := (C<ProfTarget) * EntryStop +
(C>=ProfTarget) * TrailStop;
HighestSince(1, SIGNAL, STP);
Claud....(Courtesy of Paul Beattie)
Gen & Herve wrote:
Anyone had a go at a formula
for the ATR ratchet in Metastock??Herve
<blockquote dir=ltr
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px">-----Original
Message-----
From: Hengy <hengy@xxxxxxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx
<metastock@xxxxxxxxxxxxx>
Date: Saturday, 8 September
2001 12:01
Subject: RE: Larry Williams'
"Volatility Breakout System"
I've
had some luck coding this type of system in Excel. Due to the fact
that you cannot enter trades at anything other than open or close, I've
found this is the only way to do it. Unfortunately I also had to
learn Excel at the same time. My problem is finding the best exit
system to apply. I've found that most would max out at an average
8-10% profit. Stop and reverse seems to work minimally well. My next
try will be the ATR Ratchet as spelled out by The Traders Club.
-----Original
Message-----
From: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Gen & Herve
Sent: Friday, September 07,
2001 4:38 PM
To: metastock@xxxxxxxxxxxxx
Subject: Re: Larry Williams'
"Volatility Breakout System"
The code is rather easy to write but you should first answer
the few questions equis was asking as they are very relevant. you also
need to decide on the filter (ADX or CCI?) as Equis, in their answer only
consider the ADX. Also with Metastock you won't be able to enter at the
exact price therefore you have to decide if you want to enter at the open,
close, high or low of either the signal day (or bar) or the next one.Herve
<blockquote
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px">-----Original
Message-----
From: Nick Channon <nick.channon@xxxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx
<metastock@xxxxxxxxxxxxx>
Date: Saturday, 8 September
2001 12:11
Subject: Larry Williams' "Volatility
Breakout System"
Hi, I'm writing to ask
for assistance from any of you guru code-writers out there. I
wrote to Equis support to ask if they could provide me with the necessary
formulas for Larry Williams' "Volatility Breakout System". I provided them
with a description which I found on the web (reproduced below). Equis wrote
back with the message below. What I need to know is: 1)
Have Equis come up with accurate English-language descriptions? (Any Williams
experts out there? I do not have the knowledge to judge the accuracy.)2)
Can anyone save me $60 and benefit other group members also by taking up
the challenge to code relevant explorations, indicators, experts etc.? There
follows the description found on the web, and the reply from Equis. CheersNick **************************DESCRIPTION
FOUND ON WEB
As far as we are aware, the early groundwork for volatility-based trading
systems was laid by Larry Williams in the early 1970's. He sold at
least
three systems based on the same technique, each at successively higher
prices (one of them was called the Million Dollar System). Welles Wilder,
in
his 1978 book New Concepts in Technical Trading Systems, reiterated
the
essential principles, as did Perry Kaufman in Commodity Trading Systems
and
Methods.
After Williams a number of vendors sold systems based on the method,
the
best known of which is probably the Volatility Breakout System offered
by
Doug Bry of Lakewood, Colorado. Anyone who is interested in reproducing
and/or testing any of these volatility based systems should be aware
of a
very reasonably priced software package, Steve Notis' Trader’s Powerkit,
that incorporates most, if not all, of the trading logic of the systems
that
sold for many thousands of dollars.
The Basics - Measuring Volatility
The volatility-based trading systems all use the concept of range to
define
the extent of recent market movement. The simplest definition of range
is
the distance from high to low of any given time period. This is usually
a
day, but it could be a week or a month or even an intraday period measured
in minutes.
This simple definition of range works fine most of the time, but it
doesn't
take into account days of extreme price movement. Limit days, for example,
may have a very narrow range, but the market is obviously very volatile
and
volatility is increasing. Similarly, a day when there is a gap opening
and
the day's trading takes place outside the prior day's range is an example
of
increasing volatility, even if the actual range of the day is less
than that of the prior day.
Wilder recognized this problem and defined the True Range (TR) as the
greatest of the following:
1. The distance
from today's high to today's low.
2. The distance
from yesterday's close to today's high.
3. The distance
from yesterday's close to today's low.
By itself, the True Range is still just an isolated number. To make
it
meaningful, we must take a number of past days and find the mean, giving
us
an Average True Range (ATR). This is a direct measurement of market
volatility. If the ATR is increasing, the market is becoming more volatile.
If the ATR is decreasing, the market is becoming less volatile.
How many days to use to produce the "best" ATR is a matter of conjecture.
Wilder's original volatility formula (to be explained later) uses 14
days,
but most of the modern system sellers have optimized this variable
and found
that anywhere from 2 to 9 days was better. The most profitable (as
measured
by Futures Truth) of these systems, the Volatility Breakout System,
normally
uses only two days.
How the Volatility Systems Work
All of the popular volatility-based trading systems work on the principle
that a breakout or price spike outside of the recent Range or Average
True
Range is significant and should be used as a point at which to enter
the
market. For example, let us say that the ATR for the last five days
in the
NYSE Composite futures is 1.00 points. We would be interested in a
price
move that is a percentage, say 150%, of the ATR from the prior day's
close.
This means that we would be buying or selling if prices moved 150%
x 1.00,
or 1.50 points. If the prior day's close was 190.00, we would buy at
191.50
or sell short at 188.50.
The two variables of the system are:
1) the number of days used
to find the ATR
2) the percent move from
the prior day's close that constitutes a
valid breakout.
Most of the system vendors and the presently available software rely
on
optimization to decide which values to be used for each variable.
As you may have deduced, the basic volatility breakout system is a reversal
system that is always in the market. Each day after the close, calculate
the
ATR, and then multiply it by the percent move necessary to trigger
a trade.
Add the result to the close, and you will get the point at which a
buy will
be triggered the next day. Subtract the result from the close, and
you will
get the point at which a sell will be triggered. Enter both orders
the next
day and you are in business.
Comments and Variations
One of the significant strategies of the basic system is that since
you are
either long or short, there is no neutral area. The risk on any one
trade is
simply the difference between the entry point and the reversal point.
If
they are both triggered on the same day or very close in time to one
another, a whipsaw is the obvious result. Perhaps more importantly,
the risk on a trade depends entirely on
recent market volatility, which may or may not agree with a trader's
wallet
size or money management techniques. However, the market does not care
about
conforming to your money management techniques. If you can not
tolerate the
historical volatility and potential drawdown of a certain stock or
futures
market, then you should trade smaller lots or mini-contracts.
Good trading systems are designed first to make money, and then, only
secondly, to make the process as comfortable as possible by smoothing
out
potential drawdowns. These two goals are always at odds. Less
risk (e.g.
tighter stops) always produces less profit. There is a limit
to how
comfortable you can make a system and still show a profit.
Another interesting aspect of volatility systems is that the entry point
and
the reversal point will move away from each other if short-term volatility
increases. It is easy to see how this could happen: the market moves,
the
range increases, and the stops are positioned farther and farther away
from
each other. This might tend to reduce whipsaws, but it can also increase
the
initial risk on a trade after the trade has been entered.
Volatility breakout systems are trend following systems. They
are not
designed for short term scalping for limited objective trading.
They are
designed to get in on the really big moves and stick with them until
the
end. As such it is necessary to expand the stops when the market
heats up –
even if that means increasing your initial stop. The alternative
is to be
thrown out of a strongly developing move and then being faced with
the
difficult task of finding a low-risk re-entry point. The stronger
the move
is the harder it will be to get back in, because a pull-back may not
occur
until it’s too late to catch the bulk of profits. Therefore the
best policy
is to let the market determine the optimal placement of stops.
Professionals trade many markets concurrently to achieve a smoother
overall
equity and reduce drawdown.
Suggestions on Making It Work - Filters
There is no question that they should always be in the right direction
when
a market is trending with enough volatility to be worth trading at
all. The
real difficulty, common to most trend-following approaches, is whipsaws
when
the markets have no trend and low volatility.
Over a long period, markets will be alternately stagnant and dynamic
with
most of the time spent in the stagnant mode. Similar to moving average
systems, a volatility system set up for a trending market will not
work well
in the sideways periods.
Obviously, a filter is needed. We can suggest several. First, it is
possible
to cut down the considerable initial risk on each trade by creating
a
neutral zone between long and short entry points.
The simplest way to do this is to set a percentage risk stop that is
smaller
than the percentage of the ATR that triggers the entry. For instance,
in our
earlier example we had an ATR of 100 point in the NYSE Composite, and
we
would buy on a move upward of 150% of this, or 150 points.
A tighter stop could be set by subtracting a smaller percentage of the
ATR
from the entry point. We are afraid that anything less than 100% of
the ATR
might be classified as too close and subject to almost random whipsaws,
but
using a number like 125% still gives a tighter stop level than our
reversal
point. If the risk stop is triggered, the system is now neutral until
the
sell reversal at 150% is hit, or until a new buy entry is reached.
Another possible improvement might be to avoid trades when a market
is
acting poorly, especially when the volatility is unusually low. There
may
well be 'windows' of optimum profitability for the ATR of each commodity
where it is within acceptable boundaries, neither too high or too low.
It is
safe to assume that a stagnant market with a relatively small range
will
result in losing trades, while a more volatile market will tend to
be more
profitable. The usual impulse is to re-optimize when the markets become
stagnant, but it might be more profitable in the long run to sit out
completely during the quiet markets and wait until the ATR becomes
more in
line with what your system normally needs to be successful.
A third possibility is to add an external filter, something that identifies
conditions that must be met before a breakout is taken. There are at
least
two possibilities for this among readily available technical studies:
DMI/ADX and CCI. Our regular readers are aware that we often mention
that an
upturn in Wilder's ADX signals that a market is trending. Try trading
volatility breakouts only when the 18-day ADX is rising. (Up-Down Volatility
and Percent V serve a similar function).
Similarly, a 20-period CCI based on either monthly or weekly signals
will
also tell you to what extent a market is trending over the longer term.
Look
for rapid acceleration of the CCI from its null or zero line; if this
condition exists, the market is probably moving rapidly enough to make
volatility based trading highly profitable. (CCI and Bollinger Bands
are
different views of the same study formula.)" END ********************REPLY
FROM EQUIS "Nick,
I have read the article you supplied and have pulled from
it the following
conditions. Please read them and verify they are
what you want to use
for your entry and exit conditions.
Entry conditions:
18-period ADX is rising
today's high is some percent of the ATR greater than
yesterday's high (
for buys ) OR
today's low is some percent of the ATR lower than yesterday's
low ( for
shorts )
Exit conditions:
an entry condition in the other directions ( a short signal
when long or
a buy signal when short ) OR
the price moves a percentage of the ATR against the position
you are in.
The article did not give set values for several of the
factors listed
above. These are:
1) the percentage of the ATR required for the entry signal
2) the number of periods used in calculating the ATR
3) the percentage of the ATR used for the stop
Do you have values you want to be used, or would you
rather the system
be written to optimize on these values. If you
want it to optimize
based on these values, I will need you to specify the
range you want
them to cover (ie. check ATR time periods 2 through 28).
I need you to verify and respond to the above information
because we are
not licensed financial consultants. Writing trading
systems can be
considered offering financial advise so we err on the
side of caution.
After you have responded, I can most likely provide the
system to you
within a day or two. The fee for this system will
be around $60, unless
some unforeseen technical difficulties arise." END***************************
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