The Anatomy Of A Breakout Automated Trading Strategy: Markets, Timeframes, Exits, Strategies

In the ​previous articles, we went through the anatomy of the breakout ATS. I explained all the components of the model I’ve been successfully using for many years, and I went into each component more in detail. In this final part, I would like to show you some examples of what you can realistically expect from my breakout model and I’ll also add some more information which are quite important.

Markets, Timeframes, Exits One of the usual questions is what markets and timeframes should be the model applied to. I personally trade only futures markets and I’ve found that this model can be applied to any market. Most of my breakout ATSs have been developed for index markets, however, I also develop pretty neat breakout ATSs for all other futures markets you can just name.

Some of the models are really robust; the best one works across 27 different markets. Of course, it took me several years to develop such a universal breakout ATS. When it comes to timeframes, my most favorite ones are 15-minute and 30-minute. Both timeframes have been serving me pretty well. Sometimes, I use 45-minute or 60-minute too. I rarely trade less than 10-minute timeframe.

Lower timeframes already do have too much noise and, as a result, you have too many false breakout signals. One breakout ATS applied to one market and one timeframe usually produces between 40 – 120 trades per year. It might sound like not too much, but remember, the key is a portfolio. I trade plenty of breakout strategies, so I’m definitely not bored neither I suffer from a lack of trades. For the breakout strategies, you can use many types of exits.

I’d recommend you to start with End-Of-Day (EOD) exits, though. More than half of my strategies have just this exit type implemented. It’s a very good exit to start with. Of course, you can develop both intraday and swing breakout ATSs with the model and adjust the exit method accordingly. For swing strategies, I use many different types of exits – profit-targets (USD-based, %-based, or ATR-based), bars since entry exit, or some other proprietary methods. Exits can make a big difference and it’s always wise to experiment with different parts. However, I still prefer keeping it really simple.

Examples Let’s have a look at some examples just to get an idea of what kind of performance my breakout ATS model can bring. The first example comes from E-mini Dow Jones strategy. It doesn’t trade often, but still performs very well. It’s a typical breakout ATS strategy: it uses OPEN of the current trading day as POI and ATR as distance. Then, both a simple volatility-based filter and time filter are added. The exit is only at the end of the day (EOD), or stop-loss (in this case 700 USD). Max drawdown of the strategy is 2.275 USD.

​Second example is E-mini S&P 400 breakout ATS that trades much more frequently.

This strategy is, again, a typical example of a simple breakout ATS. It uses moving average as POI, ATR as distance, moving average as filter and is allowed to trade anytime during the day. Exits are on stop-loss (in this case 1000 USD) or at the end of the day. The maximum drawdown of the strategy is 5.590 USD. These strategies give you a solid example from both sides of the spectrum: a strategy trading rather infrequently and a strategy trading pretty frequently.

Of course, not all the strategies work that well. Some of my breakout ATSs have suffered bigger drawdowns than anticipated and a few breakout ATSs in my portfolio had to be switched off completely. But this is part of the game; in markets you never have any guaranties. Although you do all the best you can, sometimes it simply happens that a strategy fails. We aren’t in a business of guaranties.

Fortunately, a well-built portfolio can pretty well handle hiccups like these. I present some other strategies on my own web, with real, live results. The strategies are tracked by Futures Truth Company and Striker.com too, so the numbers are independently verified. On top of that, if you were interested in seeing what a complete breakout ATS strategy from my portfolio looks like, you can download one (with the code included) from my blog, Systems On The Road, too.

It’s a real strategy that I currently trade in my portfolio. That’s basically all. The main purpose of the 3-part article was to present the breakout ATS model, explain its components further, and give you some examples of what to expect. The rest is up to you. Good luck.

To sum up:

  • Presented breakout ATS model can be applied to any market ( I have just experience with futures markets, though).
  • You should preferably choose higher timeframes, like 15-min, 30-min, or even 60-min.
  • The model can be used for developing both the daytrading and the swing strategies.
  • In the case of daytrading strategies, the end-of-the-day (EOD) exit is simply the best and preferable choice, as all my experiences confirm.
  • For swing strategies, you can experiment with any kind of exits.
  • You need to have reasonable expectations, based on the two equity examples above.
  • Never forget to think in terms of portfolio rather than in terms of a single strategy; it will improve your performance and protect you against situations when some breakout ATS fails, which might happen to any developer and trader.

— By Tomas Nesnidal of Systems on The Road.

About the Author Tomas Nesnidal

  • Marc says:

    The three articles seem reasonable enough. I’ll program up something similar to see if I can get anything anywhere near those back test results.

    By “end of day” exit, do you mean the literal end of the day or the end of your segmented period? You said previously that you segmented from 9-11, 11 – 2, etc.

    Also, it looks like you are only trading 24 to 65 times a year based on the results. Are the strategies correlated or complementary?

    For example, does a breakout normally trigger on all your strategies at once or do they trigger on different days? If you run a portfolio, that would make the risk exponentially higher if they are all down on the same day.

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  • Carcos says:

    Links show non-existent page

  • Rick says:

    Breakout strategies look good as long as the breakouts taken are in the same direction which the market has gone. Two things I like to look at are does this make money on bearish breakouts and does this perform better than buy and hold.

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