Skip to main content
Track Volatility breakout
5 / 11
Search the archiveLibrary
Library

2005issue C121-3

Evaluating next-day range expansion breakouts

A one-bar range-expansion can be packaged as one testable procedure: a volatility-breakout trigger, a directional-filter that allows only the matching next-session side, and a same-session-exit. Stricter expansion multiples then read as setup-scarcity filters, not as a search for a fitted report.

  • A range-expansion is a session whose high-low range exceeds the immediately prior session, and that bar is the eligibility condition for a volatility-breakout.
  • The directional-filter allows only long next-session orders after an up-close expansion bar and only short next-session orders after a down-close expansion bar.
  • The breakout-system uses a stop-entry one tick beyond the setup bar, and a same-session-exit closes any fill at the entry session's close.
  • The 1.5-times and 2-times range multiples were compared as setup-scarcity filters on an unoptimized base procedure, not as a fitted parameter search.
Entries in this reading3 entries
Current trackVolatility breakout11 readingsBreakout system48 readingsRule-based entry174 readings

One procedure from three rules

The historical workflow defines a next-session long or short procedure from a one-bar range-expansion, a close-versus-open directional-filter, a stop-entry, and a same-session-exit. TradersWeek editorial interpretation: treat that package as a classroom case for making the entry, abstention, and exit rules testable as one procedure, then compare higher expansion multiples as setup-scarcity filters rather than as a search for a fitted report.

How the setup and direction are defined

A setup bar is recognized when the current session's high-low range exceeds the immediately prior session's high-low range. That session is a range-expansion, and it is the eligibility condition for the subsequent volatility-breakout.

After a setup bar that closes above its open, the next session may generate only long orders. After a setup bar that closes below its open, the next session may generate only short orders. The directional-filter is that constraint: the opposite side is not available on the following session.

Stop-entry and the same-session-exit

The long order is a next-session buy stop placed one tick above the setup bar's high. The short order is a next-session sell stop placed one tick below the setup bar's low. Those prices are the stop-entry. The breakout-system enters only if price takes out the setup bar's high or low by that stated offset on the following session.

Any filled position is exited at the close of the entry session. The same-session-exit keeps the holding period to that day only. The rule-based-entry is the fully specified next-session long or short signal produced from the range comparison, the setup bar's close-versus-open direction, and the stated stop price.

Stricter multiples as scarcity filters

Two stricter setup definitions require the current range to exceed 1.5 times or 2 times the prior session's range. TradersWeek editorial interpretation: those multiples are setup-scarcity filters on the same unoptimized procedure, not a fitted parameter search.

The same rule set was applied to cash series of the Russell Midcap Index and the Russell 2000 from 1 January 1994 through 29 August 2003. In the Midcap tests, reported trade counts fell from 834 under the unfiltered range comparison to 440 at the 1.5-times threshold and 220 at the 2-times threshold. The reported specification was presented as an unoptimized base procedure rather than a fitted parameter search.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
5 of 11 in the Volatility breakout track
20061-8 pp.Next on Volatility breakoutCombining BandWidth extremes with a Stochastic oscillator and a Volatility breakoutVolatility is the high-to-low price spread over a chosen interval, and BandWidth tracks the outer Bollinger Bands gap as a share of the middle-band average, rising with expansion and falling with contraction regardless of price direction.
All readings on this track · 11 readings
  1. 1995A tight-range volatility breakout as one classroom procedure
  2. 1995Constructing range-compression breakout procedures
  3. 1996Volatility contraction and narrow-range breakout rules
  4. 1998Gold volatility breakout as one written entry and exit procedure
  5. 2005Evaluating next-day range expansion breakouts
  6. 2006Combining BandWidth extremes with a Stochastic oscillator and a Volatility breakout
  7. 2007Gating currency volatility breakouts with ADX and trailing stops
  8. 2010Closing half-hour longs after late bear rallies
  9. 2013Bollinger Bands, volatility breakout, and breakout confirmation as one testable procedure
  10. 2014Confirming swing breakouts after wide-range cups and gaps
  11. 2019Extreme-seeking volatility with bands, breakouts, and chandelier exits
By fieldEntry and exit rules206 readingsBy year2005104 readings
All 11 readings tagged Volatility breakout
Also on Volatility breakout5 readings
1995A tight-range volatility breakout as one classroom procedure2014Confirming swing breakouts after wide-range cups and gaps2010Closing half-hour longs after late bear rallies1995Constructing range-compression breakout procedures1996Volatility contraction and narrow-range breakout rules