Beyond Volatility Breakout

A thinking trader must decide if the breakout is a success or failure before the rest of the market does!

The system (trader) is not concerned with forecast or analysis; he is only concerned with the immediate price action after the break. Volatility breakout or range expansion strategy is designed to take advantage of sharp jumps in price action. Advanced systems capture the profitable reversals of the failed break.


Popular ways to measure the characteristics or conditions of markets are many. From the difference or spread between two moving averages, percent rate of change, gap openings, or an increase in the daily (weekly, monthly) high to low range, indices like VIX or indicators like ADX, the Chop-Index. %C indicator.

TMT has its own models of V, %C indicator, TMT-historical Volatility, and the Technical Event Matric.

Volatility breakout systems are based on the working premise that if the market moves a certain amount in one direction, of the odds, favor some continuation of the move in the same direction for a period of time. The continuation period depends on the time frame being traded: intra-day trade or multi-day swing trade for example.

Some of the most well-known breakout patterns were propagated by William J. O’Neil (founder of Investor’s Business Daily) and his protege David Ryan. Breakout methods for day trader patterns were the cutting edge in the 1980s.

Breakout methods for day trader patterns became the cutting edge in the 1980s, created by myself, Larry Williams and Tony Crabel.

The objective is to capture range days: a trading session where the market opens on its low and closes on its high where an intraday breakout takes the trader long. Alternately, the market opens on its high and closes on its low and an intraday breakdown takes the trader short. As a natural rule, ALL day trading systems exit no later than the end of the day but can exit anytime from entry to the end of the day.

So with a breakout system, a trade is taken in the direction that the market is moving at the time. It is usually entered via a buy or sell stop or with trade robots / automated trading software, the orders are executed at the market once the stop price is hit. The part of the price action the trader is playing for is based the principle that a momentum surge precedes price action.

This insight did not go far enough because not all breakouts had follow-through, some failed. Traders adapted by trading zones instead of single price levels for their breakout points. First, we used fixed bands or zones. Until more recently with the creation of the Bollinger Bands, we adapted into the %BB-Oscillator.

The BB Oscillator revolutionized breakthrough trading into dynamic support and resistance zones, which enabled us to trade the failed breakout from a dynamic support/ resistance zone. TMT’s are now able to day trade its signals via the %BB-Dynamic Breakout and Reversal Strategy on all liquid markets


Jack F. Cahn, CMT “sign up for numbers and reports below.”

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