fxcm-traits-of-successful-traders-guide

TRAITS OF SUCCESSFUL TRADERS: PART THREEHow to Trade the Majors During Active HoursChannel Breakout Strategy Filtered10K8K6KBase Channel Breakout50th Percentile75th Percentile4K2K005’ 06’ 07’ 08’ 09’ 10’ 11’CHART 3.7Hypothetical returns* using a model channel breakout strategy and volatilty filterSource: Appendix 3.6Past performance is not indicative of future results.WHEN SHOULD I LOOK TO TRADEBREAKOUTS?Every day, we publish Volatility Percentilefigures on the DailyFX Technical Analysispage for reference. The Volatility Percentile isderived from FX options prices. The higherthe number, the more volatile options tradersexpect the currency pair to be. We can usethese volatility percentages to judge when it isbest to use particular strategies. Whenvolatility percentages are high, we look totrade breakout strategies. When they are low,we look to avoid them.When looking at the Channel Breakoutstrategy above, a quick optimization showsthat the strategy improves noticeably whenwe apply filters. We simulate two casesbelow. In one case, the strategy is onlyallowed to trade when our Volatility Percentileis above 50%. In the other, it is only allowedto trade when it is above 75%. As you cansee in the chart below, in both cases we seebetter overall results than the “base case” ofletting the system trade at any time.27