Description
The ATRHighSMABreakoutsLE is a long entry strategy developed by Ken Calhoun. As it is discussed in his article “ATR Breakout Entries,” this strategy is to be applied to stock symbols that satisfy certain price range and volume criteria; to find these symbols, use the ATRHighSMABreakoutsFilter study in the Stock Hacker.
Akin to Mr. Calhoun’s previous installment, ADXBreakouts, this strategy explores high-volatility price breakouts in order to produce important long entry signals. In ATRHighSMABreakouts, breakout calculations are based on two popular technical indicators: the Average True Range (ATR) and a simple moving average (SMA) of the close price. The rationale of ATR employment here is the observation that its values increase as the daily high-low ranges expand. For a buy signal, this will need to be confirmed by a moving average crossover.
The primary triggering condition for the long entry signal is ATR being at its 14-day highest and price being above its 100-day SMA (both numbers are customizable via input parameters). If this condition is fulfilled, the strategy records the high price and adds a simulated long entry order as soon as price exceeds this value by a certain amount. This amount is set by default to 50 cents.
There are also two extra conditions which may be applied in order to refine the signals: a wide-range candle and volume increase (both turned off by default). Turning on the wide-range candle filter will have the strategy add a simulated order only if the height of the candle at which the primary condition has triggered is at least 1.5 times greater than the average. Turning on the volume filter will add checking if the volume has increased since the last candle.
Since the strategy is long entry only, you might want to use other strategies for exits, e.g., TrailingStopLX.
Input Parameters
length
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Defines the period for ATR calculation. |
average length
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Defines the period for SMA calculation. |
offset
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Defines the minimum amount by which the price should exceed its recorded highest value. |
wide range candle
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Defines whether the condition should only trigger at a candle whose height is at least 1.5 times greater than the average. |
volume increase
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Defines whether the condition should only trigger if the volume has increased since the last candle. |
Further Reading
1. "ATR Breakout Entries" by Ken Calhoun. Technical Analysis of Stocks & Commodities, May 2016.
Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.