ATR Channel Breakout Trading System

You will find further below the rules and explanations for the ATR Channel Breakout trading system. It is a classic trend following system, available in the public domain.

ATR Channel Breakout Trading System in the Wisdom State of Trend Following

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The ATR Channel Breakout System Explained

The ATR Channel Breakout Trading System is a variation on the Bollinger Breakout System which uses Average True Range instead of standard deviation as a measure of the volatility which defines the width of the channels or bands.

A variation of the ATR Channel Breakout System was popularized as the PGO system by trader Mark Johnson on Chuck LeBeau’s System Trader’s Club forum and elsewhere. This version, the ATR Channel Breakout Trading System, is more flexible and permits the testing of different entry and exit thresholds.

The ATR Channel Breakout system is a form of breakout system that buys on the next open when the price closes above the top of the ATR Channel, and exits when the price closes back inside the channel. Short entries are the mirror opposite with selling taking place when the price closes below the bottom of the ATR Channel.

The ATR Channel Breakout trading system trades based on a volatility-band breakout where volatility is measured using Average True Range (ATR). The center of the ATR Channel is defined by an Exponential Moving Average of the closing prices using a number of days defined by the parameter Close Average Days. The top and bottom of the ATR Channel are defined using a fixed-multiple of ATR from the moving average specified by the parameter Entry Threshold.

The ATR Channel Breakout trading system enters at the open following a day that closes over the top of the ATR Channel or below the bottom of the ATR Channel. The system exits following a close below the Exit Channel which is defined using a fixed-multiple of ATR from the moving average specified by the parameter Exit Threshold.

This ATR Channel Breakout trading system is similar to the Bollinger Breakout Trading System except that it uses Average True Range instead of standard deviation as a measure of the volatility which defines the width of the channel.

For example, an Entry Threshold of 3 and an Exit Threshold of 1 would cause the system to enter the market when the price closed more than 3 ATR above the moving average and to exit when the price subsequently dropped below 1 ATR above the moving average. NOTE: Exit Threshold can be a negative number which will cause the system to exit only after the price comes some amount through the moving average.

The ATR Channel Breakout trading system includes four parameters which affect the entries:

ATR Days

The number of days in the Exponential Moving Average for the Average True Range itself.

Close Average Days

The number of days in the Exponential Moving Average of daily closes which forms the center of the ATR channel.

Entry Threshold

The width of the channel in ATR. This defines both the top and bottom of the channel. The system buys or sells to initiate a new position when the closing price crosses the price defined by this threshold.

Exit Threshold

If set to zero, the system will exit when the price closes below the moving average. If set to some higher number the system will exit when the price closes below the given threshold. A negative Exit Threshold means that the exit channel is below the moving average for a long position.

Alternative Systems

In addition to the public trading systems, we offer to our clients several proprietary trading systems, with strategies ranging from long-term trend following to short-term mean-reversion. We also provide full execution services for a fully automated strategy trading solution.

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CFTC-required risk disclosure for hypothetical results

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.