LW Volatility Breakout Strategy — Step-by-Step Guide & Transcript

[00:00] This, is Larry Williams. A professional trader who turned $10,000 into $1.1 million in just 12 months of trading. Which is 11,300%!

[00:12] Now if you re like me, you re thinking, how did he do it? Well I decided to look for the answer of that specific question. Sacavenging the internet

[00:25] And ohhh boy did I find something. I found the exact trading strategy he used to make these gains. And I gotta say, Larry is an absolute G for

[00:37] making this because it works insanely well. And I m gonna share it with you guys. Let s get straight to it. So the strategy he used to make these gains is called the Lw Volatility Breakout strategy. LW for larry Williams. Makes sense.

[00:51] So this specific strategy basically forms around one specific indicator and that indicat or is The DONCHIAN CHANNElS indicator. To add it to your chart, go to the indicators tab and type in donchian channels. Click this

[01:06] one right here. Now the donchian indicator by itself is nice, but in order for it to work just how we want it, we gotta change the settings. Then I m also going to go to the styles tab and change the colors of the lines to red

[01:24] settings im about to tell you are for specifically the 5 minute time frame. As that is the time frame larry used for this specific strategy. If you are going to be using a different time

[01:37] So this what the donchain indicator looks like by itself. There are going to be 3 lines. This middle line. Which basically acts as a mean reversion point for the market. Which means the means price will always be naturally

[01:51] attracted to this line, almost like a magnet. You can also use it to tell the momentum of If the price is below the line, its bearish. Next is the upper and lower band.

[02:04] These bands can act as boss supports and resistances and often times price will hit these and reject. But we can also use them as break out points. As if price breaks this upper band, often

[02:17] times price will continue to head upwards. Which is exactly how Larry used it. That s a little foreshadowing But there is a small problem with this strategy. Actually it s a pretty problem let me explain. So normally how you use this indicator is

[02:32] one price breaks this upper bands, you enter a long, set your stop loss right below the middle line, and set your take profit to something like a 2:1 risk to reward ratio and you get If the market is consolidating like this and moving sideways, this is when we start seeing

[02:49] the upper and lower bands are going to be really close together, like they are here. Which means, they are a lot more likely to break even from a small move that doesn t

[03:04] have a lot of momentum behind. Which in the end, would give you a false signal, and you would lose out on this trade. So we need to find a way, to stop this from happening. So we only enter in high quality trades that have a lot of movement behind

[03:20] confirmations But before that,

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[04:07] the first confirmation indicator we are going to be adding is the LWTI. Or the larry Williams large trade index. Go to the settings of the indicator and Change the period to 25. The higher this is number the more long term

[04:23] trends it will look for. If you are looking for confirmation for shorter term trends, a small number is better. I found 25 works the best for the 5 minute time frame. Then change the smoothing period to 20. Then for the final indicator add a simple

[04:38] volume indicator. I know I know pretty boring. But this will help us a ton with avoiding false signals! Go to the settings and change the ma length

[04:50] moving average and change the color to white. This volume indicator will help us identify when the market actually has momentum behind it and not just a small move.

[05:02] The strategy itself is pretty simple and im going to teach you how to do it. Then at the end, Ill give you a secret trick to make it perform even better! First make sure you re on the 5 minute timeframe. For a long trade you want to do this.

[05:16] Step 1, you want price to come up and touch the upper red line. Once that happens, the next step is you want the lwti indicator to be green. If it is red Then finally you want the volume bars to be above the white line and also want that to

[05:34] be green. Showing the market is not consolidating and there is enough volume to enter the trade. All 3 of these criteria need to be met in

[05:48] Now the stop loss kind of depends on the setup. Usually you would just set your stop loss right bewlow the middle orange line. But there are some cases where you would not

[06:00] do that. For instance when the upper band and the organ line have a huge gap this. Where if you did set your stop loss here, the stop loss would be huge. If this is the case, you would just set your stop loss at the recent swing low.

[06:14] below the middle line though. Once you have set your stop loss. And just like that you have a profitable trade. Let s do a short example and then Ill give

[06:27] you the secret trick to make this strategy even better. First you want price to hit this lower band. Check the lwti indicator and make sure it the white line and you want the bars to be red.

[06:43] line and set your take profit at a 2:1 risk to reward ratio. Now, its time to go over the SECRET TRICK. Another small problem I found with this strategy

[06:59] is when its near a major support or resistance. For example, here all of our requirements were met. Price touched the upper band, the lwti indicator is green, and the volume is above the line and also green. So we entered our trade and set our normal

[07:13] take profit and stop loss. But if you look here, it was actually a losing trade. If we zoom out you can see all of our criteria was met, but it was met right at a clear strong resistance level.

[07:27] So yeah, we got all of our signals, but since this was such a strong level, price bounced higher timeframe like the 1 hour. Set all of your major support and resistance

[07:40] levels. Once you have them done, do not enter trades close to those major levels. So in the trade I was talking about before, you would have just skipped this trade.

[07:53] Actually what I found works really well is if price is currently breaking a resistance level and then all of the indicator requirements were met, this would be a great trade to enter, as its there is a ton of confluence and bullish momentum in this trade.

[08:07] So yeah, if you pair this strategy with basic support and resistances or even supply and demand. Its works absolutely great. If you guys want to learn how to draw the perfect supply and demand zones for this strategy, watch this video, because I tell you specially

[08:23] on how to draw the best zones possible. Thanks for watching, and ill see you guys, next time.