Better Breakout Trading Model

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • vimal says:

    Hi Jeff. This is a very good article. I have some thoughts I wanted to share with you/questions:

    1. Does this include/exclude dealing costs and slippage?
    2. What if you adjust the strategy to only trade when the VIX is trading above 15 (I choose 15 arbitrarily but simply trying to exclude low vol periods). At a complete guess, the flat period for trades 150-250 may be during 2004-2006 when Volatility was unusually low
    3. Staying with VIX, a strategy to adjust take profit based on the VIX reading?
    4. What about only taking breakout trades above the 200day MA for longs and shorts below?

    I will stick with the above for now and await your thoughts. Think bringing VIX into the equation may change the shape of the equity curve …..or at least I hope it will.

  • vimal says:

    Hi. Sorry just read the article in more detail and you refer to VIX & Dealing costs/slippage so ignore those points

    Regards

    Vimal

    • To be honest, I’ve not explored this trading strategy very much. I only recently learned about it and wanted to share it right away since it looks so promising. However, I did test taking trades above a 200 day SMA but this did not help at all. I also tried a 100 and 50 period SMA with no improvement. I also reversed the rules to take short trades. This did not work.

  • vimal says:

    another thought……..do days of the week make a difference? Maybe clutching at straws. Or even does calendar month make a difference? I guess calendar month may be curve fitting but days of the week may be more valid.

    Also I presume other timeframes do not work aswell as 5min?

    • These are good questions and ones I can’t answer at this time simply because I have not explored them. If I get some time I would like to test these ideas. I often do not use greater than 5-minute charts for intraday systems simply because backtesting will become less reliable.

  • AnTZ_TK says:

    Hi Jeff,

    I believe your expectancy scores are all wrong due to a formula error: Even though you multiply the expectancy by 365 (CALENDAR days) you then divide by TRADING DAYS (242 p.a. on average) instead of the CALENDAR days of the testing period.

    Example for your best system variation:
    a) what you show above: 0.32 * 377 trades * 365 / (15 years * 242 trading days) = 12.13
    b) correct value: 0.32 * 377 trades * 365 / (15 years * 365 calendar days) = 8.04

    Or is there a reason for multiplying by 365, but then using trading days?

    TK

    • Thanks TK. It appears you are correct. I’m looking over the code now and it looks like the trading days value, which appears in the numerator, is incorrect. Again, thanks for taking the time to point this out. I will have to update the values in this article as well as the code which performed the calculation.

  • Hans says:

    Cool thanks man. will take a deeper look into this strategy.

  • John says:

    Hi, I just tried out this strategy as downloaded form your site and for some reason I am not getting the same results at all. I get a very small number of trades over the period (45) and not one single winning trade? Clearly there is a problem somewhere.

    • Hello John – Did you download and use the WorkSpace provided? If not, give that a try and see if your issue is resolved.

  • John says:

    Hi Jeff,

    Yes, imported the workspace and strategy code directly into TS as downloaded from your site without modification. I first had issues with a “MaxBarsBack” error message, but now the workspace loads ok but I get a horrific looking equity curve. The last long entry was 11th March 2009, which is still open. All trades are losing trades, exited by hitting the stop loss.

    I’m just wondering whether there are any settings I should have in TS that I don’t know about to get this working as yours is.

    • John – I just downloaded the WorkSpace from the website to test it, and it appears OK. Within the input of the strategy you will see the “CloseTime” input parameter. This is your local time at which all open trades are closed. This time might need to be adjusted by your local time zone. Give that a try.

  • Mark says:

    Hi Jeff, very interesting article.
    How do you calculate the exit price? Is the close price of that day?. Thank you

    • Mark, the open price of the 5-minute bar after 1500 central is the exit price.

  • Ben says:

    I had the same problem John was having, so I created a ES pit session time that goes from 9:30-4:10 est, I also changed the code on the exit stop from-
    If ( Time = CloseTime ) Then sell next bar at market;

    to-
    setexitonclose;

    and I finally got it to work after that, just an fyi for anyone that was having issues, not sure why or how that fixed it but thats what worked for me

  • kristian says:

    Thanks for sharing! However I wonder why you put in a buy stop order instead of a buy limit order? And in your comments you mention that backtesting on TFs bigger than 5m is less reliable, why is that?

    • Hello Kristian. You’re welcome. I have a preference for market orders when backtesting. They tend to be more reliable than limit orders. You most certainly could use a limit orders, if you wish. Reviewing my comment from 2012, I wonder myself what I was talking about. I’m not sure what my intent was. Backtesting on 2, 5 or 10 minute bars should be equally reliable. Sorry for the confusion.

  • Kevin says:

    Hi Jeff
    This looks like a very interesting system and I’m in the midst of working with it. Just one comment/request – for those of us that do not use TradeStation (I use MultiCharts), it would be helpful to have an excel dump of the entire settings and results. I know MultiCharts has a feature where you can export the entire thing to excel. If TradeStation has this ability, it would be a nice reference so that we could see all your assumptions.
    Thanks,
    Kevin

    • Thanks for the idea kevin. I’ll keep that in mind.

      • Pablo says:

        Kevin,

        I am a MC user as well and just starting to go down this road of developing code for ORB. Shoot me an email if you are interested in collaborating; Pablo@CorePro.com

  • Ryan says:

    Factoring in slippage & commission, the above has not held up well during since 2012. Comments?

  • Luca says:

    This system works very well, but the futures for many people is too expensive.
    I’m trying to modify the code to use this system with 3 data:
    SPY ETF 5min DATA1
    ES 5 min DATA2
    ES daily DATA3

    Input: {————————————————————————————-}
    OpenTime(1530),
    CloseTime(2130),
    Lookback(40);

    variables:{———————————————————————————}
    vMomentum(0,data3),
    LowOffset(0,data3),
    HighOffset(0,data3),
    MaxOffsetAvg(0,data3),
    MaxOffset(0, data3);

    {== START OF MAIN PROGRAM =====================================================================}

    vMomentum = Close data3 – Average( Close data3, Lookback );
    LowOffset = Absvalue( Close data3 – Low data3 );
    HighOffset = Absvalue( Close data3 – High data3);
    MaxOffset = Maxlist( LowOffset, HighOffset );
    MaxOffsetAvg = Average( MaxOffset, 3 );

    If ( vMomentum OpenTime) and (Time (Close data3 + MaxOffsetAvg) Then Begin

    Buy(“LE”) next bar at Open;

    End;
    End;

    If ( Time = CloseTime ) Then sell next bar at market;

    //Setstoploss( MaxOffsetAvg/2 * Bigpointvalue );

    • You might find it easier to simply use two data streams. Data1 is the 5-minute SPY and Data2 the daily SPY. As for being expensive, I would think the ETF would be more expensive given the number of shares you may need to trade to get the same dollar return on futures. But I’m biased towards futures.

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