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.