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Table of Contents

Volatility Crusher Manual

What is Volatility Crusher?

Volatility Crusher is a breakout and breakdown detection indicator that comes equipped with entry and exit signals as well as our Instant Efficiency Technology (IET). Its approach is all about analyzing trends in volatility compression and expansion to signal the moments where price explodes into a trend. It takes a unique and innovative approach to identifying these high quality breakouts and breakdowns.

It includes two indicators in one:

  1. Volatility Crusher Signals for visualizing the trading signals, targets, and stop loss on the chart
  2. Volatility Crusher Tunnel for visualizing the more involved process of compression and expansion in a subplot

It will work on any symbol and time frame – but since it is built to trade price breakouts and breakdowns, it is usually most profitable to apply it to symbols with a relatively high range and volatility.

How it works with Trading 360

As part of the Trading 360 System, Volatility Crusher is designed to catch powerful breakouts and breakdowns into new trends. These explosive moments tend to happen after periods of increasingly tight price action.

It is the Trading 360 indicator which is not particularly intended for one market condition; it can work and generate great signals regardless of market conditions, since its calculation of price compression and expansion is always relative.

Volatility Crusher is complimentary to both Divergence Cloud and 1-2-3-Strike! since its signals can often align with and confirm both of theirs.

Like all of the Power Bundle indicators, it works and is designed to function as an independent indicator in addition to being a part of Trading 360.

How is all of this calculated?

Volatility Crusher is all about analyzing how the compression and expansion of volatility progress through time. Simply put, it finds its high quality breakouts and breakdowns by spotting the moments where an exceptionally rapid expansion of price coincides with a new high or low. This expansion of volatility is visualized in Volatility Crusher Tunnel as the ‘Average Expansion’ plot.

The Average Expansion plot

When average expansion crosses above the upper standard deviation band while price expands to a new high or low with sufficient volume, an entry signal occurs. The profit targets and stop loss are then plotted at a distance from the entry price relative to the size of the compressed zone from which price exploded.

Expansion from a compression zone

Parameters

Lookback Period

This sets the size of the areas we look back over to assess compression, expansion, and technical breakouts/breakdowns.  Entry signals occur when the current bar is explosive (expanding significantly) while pushing to new highs or lows relative to this lookback.

Smoothing Period

A breakout or breakdown occurs when price expands in an explosive manner – meaning by at least a certain # of standard deviations) – relative to the mean (the average). This period sets the lookback for calculating the average level of compression/expansion as well as the standard deviation.

Std. Deviations Multiple

This value sets the # of standard deviations (mentioned above) by which expansion must exceed the average for a bar to be considered explosive. So, when this value is increased, fewer and fewer bars will be considered sufficiently explosive. Similarly, decreasing it to a low value, like 0.5, will make it much more common for a bar to be considered explosive relative to the norm.

Fast Trend Period

The fast and slow trend periods are used to filter entry signals based on a simple trend calculation. If the Fast MA is above the Slow MA, long entries can occur; if it is below, short entries can occur.

Slow Trend Period

The fast and slow trend periods are used to filter entry signals based on a simple trend calculation. If the Fast MA is above the Slow MA, long entries can occur; if it is below, short entries can occur.

Require Volume

Enabling this setting will ensure that entry signals only occur when the volume of the entry bar is greater than the Volume Average multiplied by the Volume Multiple. For example, if ‘Require Volume’ is enabled, the ‘Volume MA Period’ is set to 50, and ‘Volume Multiple’ is set to 2.0, then entry signals are only going to trigger if the breakout/breakdown bar also has a volume greater than 2 times the 50 VMA (Volume Moving Average).

Volume MA Period

Sets the period for calculating the VMA (Volume Moving Average) used for the ‘Require Volume’ setting above.

Volume Multiple

Sets the multiplier for the ‘Require Volume’ setting above.

Trading Style

This setting lets you limit the signalled/displayed entries and exits to either ‘Long and Short’, ‘Long Only’, or ‘Short Only’. It can also help you adapt yourself to a chart’s bias by comparing the IET statistics for different trading styles.

Target 1 Retracement %

Sets the distance of Profit Target 1 from the close of the entry bar, based on a percentage of the lookback area from which price exploded. For example, if the ‘Lookback Period’ period is 10 bars, and the range over this period (the difference between the highest high and the lowest low) is $10.0, with a Target 1 Retracement % of 50.0, then Profit Target 1 will be placed at the close of the entry bar +/- $5.00.

Target 2 Retracement %

Same logic as above, but for Profit Target 2.

Trailing Stop Retracement %

Same logic as above, but for the Trailing Stop Loss. With every new bar, the indicator will trail the stop by the initial stop distance.

Trade Examples

Volatility Crusher consistently hitting its targets on the 1 min intraday chart for TSLA with extremely high efficiency in both directions.

Volatility Crusher playing the recent volatility and catching the breakdown of AMC with extremely high efficiency in both directions

Platform-specific topics

For more detailed coverage and examples for all platforms, be sure to check out the Trading 360 Master Class.

MotiveWave

Scanning for Volatility Crusher signals

To scan for Volatility Crusher signals:

  1. Create a new Scan page
  2. Select ‘New Scan’
  3. Select ‘Study’
  4. Choose the Volatility Crusher study
  5. Select one of the ‘(Alert)’ plots to scan for

Usage in the Strategy Builder

Volatility Crusher can be used with our Strategy Builder for MotiveWave to create entry, exit, target, and stop conditions. To define a plot condition with Volatility Crusher:

  1. Select the desired ‘(Alert)’ plot from the first input dropdown
  2. Select ‘Greater than’ as a comparison
  3. Set the compared value to ‘Numerical’ and ‘0’

NinjaTrader 8

Creating a Custom Market Analyzer Column

A custom column can be created in the Market Analyzer to scan for signals from any of Volatility Crusher’s plots. To create a custom column:

  1. Right click inside the Market Analyzer, select ‘Columns’
  2. Select ‘Indicator’
  3. Navigate to ‘TradingIndicators -> Volatility Crusher’
  4. Select the desired plot
  5. Click ‘Ok’ – the column will appear and calculate its values

Usage in the Strategy Builder

Strategies created with the Strategy Builder can incorporate Volatility Crusher signals by creating conditions like so:

  1. Add new condition
  2. Select ‘Indicators -> Volatility Crusher’
  3. Select the desired value plot
  4. Set the comparison as ‘Greater than’ a numerical value of 0 using ‘Misc->Numerical’

MetaStock

Configuring an Optimization System Test

Volatility Crusher comes with two System Tests: ‘Volatility Crusher’ and ‘Volatility Crusher – Optimizer’. The ‘Optimizer’ test allows you to configure the parameter combinations that you would like it to test while optimizing.

Each parameter can be assigned a range which you would like to test, from minimum to maximum value, as well as the increment by which you would like the parameter value to step from the minimum to the maximum.

To configure these settings for the parameters:

  1. Go to System Tests in the Power Console
  2. Navigate to ‘Volatility Crusher – Optimizer’
  3. Double click on the test to open its settings menu
  4. In the ‘Optimizations’ tab, you can configure the test values
  5. For ‘Trading Style’, a value of ‘0’ means that the test will use both long and short trades; ‘1’ will take only long trades, and ‘2’ will take only short trades

Videos