Volatility Breakthrough Strategy UPGRADE Complete, Volatility Breakthrough Rage Strategy Revealed!

Hello i'm QuantPick!         

About a year ago, Quantpick was able to make steady profits by automatically trading programs in the cryptocurrency market using Larry Williams' strategy to break through volatility. Although it did not earn much compared to the market, it has never lost less than -0.5% on a monthly basis, and achieved a cumulative return of about 120% as of May 2021.

Of course, in the cryptocurrency market like today, if you buy any Kimchi Coin and close your eyes for a few months, you will be able to earn 5x or 10x or more. However, there is no permanent bull market, and I doubt that the same method can be used to generate sustainable returns in the future.

 

 

There is no right answer to investing, but a strategy that has earned at least 50% annual compounding interest over the past 10 years and defended it at -25% in the worst case is the volatility breakthrough strategy. Recently, as Quantpick further researched and studied, various devices were additionally mounted on top of the basic strategy of the volatility breakout strategy, making the strategy more robust and more aggressive. I will share my know-how and insights in this post.

 

One . Volatility Breakthrough Basic Strategies

- The most effective logic of the volatility breakthrough strategy is as follows.

- Buy: Breakthrough line = previous day's range (high-low) * K + today's market price

- Sell: Time cut = Sell at today's market price.

- If I break it down a little longer and interpret it, it is as follows. Buy when the price crosses the breakout line, and hold cash if it does not. When the price breaks through, when buying, we sell when the time is right, regardless of profit or loss, taking into account the average regression due to the profit selling of other market participants and the selling based on the recovery sentiment.

 

2. Volatility Breakthrough Timeframe Diversification Strategy

- Next, time frame variance was applied to the existing volatility breakout strategy. The buy and sell logic is the same, but a time dispersion technique is used here.

- The cryptocurrency exchange calculates the closing price of the previous day and the opening price of today based on 00:00 UTC. 00:00 UTC is 09:00 am Korean time. Coincidentally, it is the same time as the Korean stock market opens.

- The volatility breakthrough strategy calculates the previous day's high - the previous day's low, then multiplies the K value and adds today's market price to form a buying condition. If 00:00UTC is set as the closing price of the previous day and the opening price of today, the high and low of the Bitcoin price are calculated from 09:00 am Korean time to 09:00 the next day.

- If 01:00UTC is set as the closing price of the previous day and the opening price of today, the high and low of the Bitcoin price are calculated from 10:00 am Korean time to 10:00 the next day. And the calculated range is added to the price of 10:00 the next morning instead of 09:00!

 

 The timeframe distribution strategy can be used in two main ways!

 

A. Operate by optimizing the time period that works best.

- As a result of backtesting the past several years for all 24 hours by hour, 09, 10, and 11 am Korean time gave meaningful results! And among them, the results were good in the order of 10 > 11 > 9 based on Bitcoin and Ethereum.

- In the past, the strategy of calculating the range of the previous day based on 9 o'clock and forming a breakout line and time cut was used at 9 o'clock, whereas the time frame dispersion strategy was applied to calculate and time the breakout line based on the optimal time Upgraded to cut.

 

B. Increase strategy capacity by distributing strategies by timeframe.

- Another use is to form a breakout line & apply a time cut based on the 09:00, 10, and 11 o'clock, although the yield may fall.

When there is insufficient liquidity, huge transaction costs may occur due to slippage when transacting billions of dollars at market price. By distributing these funds in 1/3 and then distributing them over the 9:00 / 10:00 / 11:00 timeframes, the rate of return is slightly lower, but you can increase the capacity of your strategy and lower your transaction costs!

- In simple terms, it is easy to understand if you think of it as a trade-off between strategy capa and return!

 

3. Volatility Breakthrough + Timeframe + Volatility Control Techniques

The volatility control technique is a money management technique that controls the volatility you want to expose!

Yesterday's volatility = (previous day's high - previous day's low) / (previous day's close)

Input weight = target volatility / previous day volatility

How to control volatility!

- Suppose the volatility of the previous day is 10% and the volatility I want to expose is 5%. So, if the price breaks today, what is the proportion of my investment?

Input share = 5% / 10% = 50%!

- Conversely, what if the volatility of the previous day is 5% and the volatility I want to expose is 10%?

Input share = 10% / 5% = 200%!

- In this case, I can use leverage to expose the volatility I want to expose.

 

4. Breakthrough Volatility + Timeframe + Volatility Control Technique + Leverage

- Depending on the volatility cycle and clustering, there is a premise that there is a high probability that volatility will increase after an interval of low volatility, and that volatility will decrease after an interval of high volatility.

- Cryptocurrency is a very trending market, and after the volatility becomes small, it moves sideways for a while, then a trend is formed with huge volatility in the up or down direction.

- In the low volatility section, if you use the volatility control technique + leverage, you can take a very large profit at once when breaking through the upside.

- Conversely, after making a profit after rising in a large trend, you can naturally reduce the amount of bets to reduce your losses even if you enter a position!

 

To summarize in one word!

When I have an advantage, I use leverage to maximize profits.

When my situation is not good, I minimize the loss by reducing the weight!

 

5. What is Noise Ratio? And the reason why Quantpic doesn't use it!

It can be seen that the volatility breakthrough strategy developed by Larry Williams works well for indices and cryptocurrencies such as the KOSDAQ. This strategy does not work well for all asset classes. If you backtest other commodities such as foreign exchange, gold, and crude oil, you can see that the yield curve is completely broken.

 

The conditions for a volatility breakout strategy to consistently generate profits are as follows.

1. It must be highly volatile.

- A strategy to break through volatility works well when the volatility of the asset class or individual stock being traded is high.

- This is because, if volatility is high, you can make a profit even if you cover fees and slippage when buying after breaking through.

 

2. Low noise.

- Trend = Less noise = This means that once a trend is formed, it will continue to the trend. Non-trigger = loud noise = it means that the price is strong when it rises and falls, and when it falls, the direction of the price changes.

- If a particular stock is trending, the upper or lower tails of the candlestick chart are short.

The upper tail occurs when the price goes up and down, and the lower tail occurs when the price goes down and then rises.

- If the upper and lower tails are short, the noise is low, and if the upper and lower tails are long, the noise is high. If we solve this in one line

Noise = 1 - abs(open-close)/(high-low)

- Let's take the denominator as the total length of the candle. To calculate the total length of the candle, subtract the low price from the high price.

- If the fraction is the absolute value of (opening - closing), you can calculate the ratio of the length of the opening to the closing price from the entire length of the candle.

- Finally, subtract this ratio from 1 to get the ratio of the upper tail to the lower tail. And you can use it as an indicator!

 

There are 4 main ways you can use the Noise Ratio in your Volatility Breakthrough strategy!

1. Enter only when the noise value is below a certain level!

- Use it as a filter condition for entering a single event!

2. Included in the portfolio universe only when the noise value is below a certain level!

- Used as a filter condition for portfolio composition!

3. Select and trade only stocks with low noise values!

- A low noise value means that the stock is trending!

4. Adjust the entry threshold according to the noise value!

- If the noise value is small, lower the breakthrough coefficient!

- If the noise value is high, the breakthrough coefficient is adjusted high!

 

Using methods 1 to 3, the trading universe is only traded with Bitcoin and Ethereum, which have the largest market cap and huge transaction volume in the coin market, and has been omitted. And the result of backtesting using the noise ratio of the rage anger indicator that adjusts the threshold of entry according to the noise value, which is number 4, is as follows.

 

Setting the coefficient and square to 1 dynamically adjusts the breakout line according to the noise ratio rather than a fixed k value. ByBit Bitcoin Inverse Futures Contract, the profit curve from January 01, 2019 to May 11, 2021. We can see that the revenue curve is broken when using the noise ratio.

 

I also tried the noise ratio on Ethereum! The frequency of transactions increases and the profit curve does not break.

 

However, not using the noise ratio gives better results in the backtest~ As a result, Quant Pick decided not to use the noise ratio!

 

Quantpic VB+

1. We only trade Bitcoin and Ethereum.

2. Utilize Binance Futures Exchange to lower transaction costs and leverage leverage.

3. A breakout line is formed and time cut is made based on 10 o'clock, when intraday momentum is most evident.

4. Apply the volatility control technique based on MDD -25% or less in the backtest.

5. Leverage is limited to a maximum of 200%, which outperforms the market, but lowers the possibility of forced liquidation.

 

The sources I studied and researched are as follows.

1. SYSTRADER79 Cafe

2. Haltu YouTube

3. Cryptocurrency Investment Magic Formula

4. CheolTu YouTube

5. CheolTu site

And by properly combining all of the above data, data, and Trading View script, and taking all the factors mentioned above into consideration, Quant Pick is operating Quant Pick VB+ by building up from the most basic volatility breakout strategy.

*** You can check all the ways to purchase and set the strategy by referring to the introduction and setting method of the new CheolTu strategy for 2021!