Trading strategy: Break-Out SuperTrend

Description

The Break-Out (BO) SuperTrend strategy attempts to profit from small price break-outs. It is a straightforward day trading strategy. Besides price channels it uses the popular SuperTrend indicator. The BO SuperTrend strategy can be used for market indices, commodities and forex trading.

The strategy in detail

The BO SuperTrend strategy is applied in a 5-minute time frame. The main components are a 20-period price channel, the famous SuperTrend indicator set on an hourly basis, and a precise time filter.

When to open a position?

A position is opened when two subsequent candles break out of the price channel. A long position is opened in the case of an upwards break-out. A short position is opened in the case of a downwards break-out.

In addition the break-out signals are subjected to two filters: a trend filter and a time filter. The time filter is set to 9h00 - 12h00. Signals which occur outside this time period are not relevant. The trend filter is the SuperTrend. If the SuperTrend is positively oriented only buy signals are acted upon. If the SuperTrend is negatively oriented only short sell signals are acted upon.

When to close a position?

The BO SuperTrend strategy uses a profit target and a stop. The profit target is 0,75% above (below in the case of a short position) the price at which the position was opened. The stop used is a BreakEven stop. This stop is equally set at 0,75% from the price at which the position was opened. When the position evolves profitably the BreakEven stop, like a trailing stop, will move automatically. It will stop moving until the stop level is 0,75% above (below in the case of a short position). In practice this extreme never happens as the position will already have reached the profit target.

A third possibility is that the position is closed by the time filter. Indeed, in case neither the target nor the stop are reached before 12h00 the position is automatically closed at the market price at 12h00.

In this example the trend filter is positively oriented (green chart background). A long position was taken after two subsequent candles broke out of the price channel. The profit target (green line) and the stop (red line) appear immediately. The profit target level and stop level, however, were not reached before 12h00. The position was closed at the market price at 12h00. The trade was profitable.

In this example the trend filter is negatively oriented (red chart background). Because of this the first break-out, a bullish signal around 9h10, is ignored. Around 10h45 two subsequent candles break downwards out of the price channel. A short position is opened. The profit target level (green line) and the stop level (red line) appear immediately. The profit target was reached and the position closed with a profit.

This example shows the historical results of the BO SuperTrend strategy applied to the French CAC 40 market index.

Conclusion

The Break-Out SuperTrend strategy is a strategy based on price break-outs. The break-outs are filtered with a the popular SuperTrend trend filter and a time filter. The strategy is suitable for day trading. All open positions are closed at 12h00. The strategy can be used for trading market indices, commodities and forex.

Practical implementation

In NanoTrader Full follow these steps:

• Choose the instrument you wish to trade.
• Open a chart with the template study "WHS BO SuperTrend".
• Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.