Basic System Rules

Volatility Squeeze System


Theory:

A period of high volatility will often follow a period of low volatility. Specifically, a breakout will often follow a tight range day (a small range day in comparison to previous days).

Implementation:

• Use a daily chart and the ATR (Average True Range) indicator.
  
• Place long/short entries at yesterday's high/low; place entries just beyond the high or low at a predetermined amount of pips (parameters depend on currency pair)
• place order around 18:00 EST
• exit any open trades around noon EST the next day
• stops are set according to currency pair
• Only place orders if (yesterday's range) is smaller than (ATR(33) * percentage) ; actual parameters depend on the pair
• trade size depends on currency pair and risk aversion...I use around 1.5 to 2.5%, depending on the situation

The system works with GBP/USD, USD/JPY, USD/CHF, AUD/USD, and EUR/JPY. I'm sure more pairs will work...I just haven't tested them yet. Note that the system doesn't seem to work with EUR/USD or USD/CAD.


Currency Specific Rules:


Pair | StopDistance | Entry threshold | ATR % | Notes


GBP/USD | 34 | 5 | 70
USD/JPY | 32 | 5 | 70 | no trades on Friday
USD/CHF | 28 | 1 | 60 | no trades on Friday


Parameters for other pairs will follow in a later post.....