If you spend any time studying futures charts, one of the patterns that you will surely notice is that the large range days where the big moves or ‘volatility expansions’ happen, usually follow periods of low range days. This setup aims to take advantage of these volatility breakouts when the market suddenly awakes from its slumber and decides to go somewhere fast. We’re not going to try and predict which way the market will move – we’ll just be ready and waiting with our orders above and below.
Parameters for buy orders (for sells rules are reversed)
This setup also works well for the S&Ps. Here you’ll need to use an entry equal to 50% of the prior day’s range added to or subtracted from the open, and take buys on Mondays, Tuesdays, and Thursdays, and sells on Thursdays only. You can also exploit the fundamental relationship with bond prices here as a filter; only take buy setups in the S&Ps when bonds close higher on the prior day than five days previously, and visa-versa for sells.
Parameters for buy orders (for sells rules are reversed)
- Take buy setups only on Tuesdays and Thursdays.
- Place a buy stop order with your futures broker at a distance equal to 100% of the prior day’s range above the open.
- Place a stop loss equal to 50% of the prior days range below the level at which you have placed your buy order (remember, that’s from where your entry will be, not from the open!)
- Exit at the next profitable opening.
- For sell setups the days to trade are Wednesdays and Thursdays.
This setup also works well for the S&Ps. Here you’ll need to use an entry equal to 50% of the prior day’s range added to or subtracted from the open, and take buys on Mondays, Tuesdays, and Thursdays, and sells on Thursdays only. You can also exploit the fundamental relationship with bond prices here as a filter; only take buy setups in the S&Ps when bonds close higher on the prior day than five days previously, and visa-versa for sells.