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| ATR and Stop Losses by WebMaster 23. Nov 07:24
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| What
is ATR and how can it help me with setting stop losses?
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| Re: ATR and Stop Losses by Louise Bedford 4. Dec 18:07
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One
of the key concepts that I use to trade the markets is Average
True Range (ATR).
True Range is an indicator initially defined by Welles Wilder.
It is the greatest of the following for each period:
· The distance from today's high to today's low.
· The distance from yesterday's close to today's high.
· The distance from yesterday's close to today's low.
Average True Range: is the average of the true ranges
over the past x periods (where x is specified by the user).
A simple definition is the move in cents that a share could
reasonably be expected to make during a particular period. On a
daily chart, it shows how much the share price is likely to go
up or down in a day. It typically shows a figure compiled from
the last 15 – 20 days price activity.
For example, when looking at the Smorgon Steel Daily chart, it
is hard to mentally calculate how much this share’s varies on
a daily basis. When looking at the ATR figure, this shows that
on average, as measured over the past 15 days, this share goes
up or down by 2.33 cents per day. This is typical behavior for
this share. This has implications for position sizing, setting
stops, entry and exit methods.
Volatility has no bias. Whether the share moves up or down in
value is of no consequence to the ATR calculation. It is the
amount that it moves, regardless of direction that counts.
Using Smorgon Steel as an example, if we were to use 3 ATR as an
initial stop, have a look at the following calculation:
Current Price = $1.00
ATR = 2.33 cents ie 0.0233
To calculate where we would exit for an initial stop loss, based
on a 3 ATR stop, apply the following formula:
Current Price – 3 ATR = Exit Price
$1.00 – (3 x .0233) = $0.93 (rounded)
A 2 ATR stop level is appropriate for a short-term stop
placement, a 3 ATR stop level is appropriate for a medium-term
stop placement and a 4 ATR stop level is usually utilised by
longer term traders.
This concept can also be combined with the 2% rule, which is
another issue to consider.
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| Re: ATR and Stop Losses by Chris Tate 13. Dec 11:41
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For
those who have not seen this code the following is the code for
what is known as a Chandelier exit.
Long Exit
dataarray:=Input("Data array. Enter a number 1=o, 2=h, 3=l,
4=c",1,4,4);
value2:=If(dataarray=1,O,If(dataarray=2,H,If(dataarray=3,L,If(dataarray=4,C,C))));
multiplier:= Input("Enter ATR multiplier ",1,10,2.5);
atrperiods:= Input("Enter ATR periods",1,39,5);
HHV(value2 - multiplier*ATR(atrperiods),10)
Short Exit
dataarray:=Input("Data array. Enter a number 1=o, 2=h, 3=l,
4=c",1,4,4);
value2:=If(dataarray=1,O,If(dataarray=2,H,If(dataarray=3,L,If(dataarray=4,C,C))));
multiplier:= Input("Enter ATR multiplier ",1,10,2.5);
atrperiods:= Input("Enter ATR periods",1,39,5);
LLV(value2 + multiplier*ATR(atrperiods),10)
These will need to be cut and pasted into the indicator builder,
you will require one indicator for long exits and one for short.
The indicator allows you to plot the length of ATR that you wish
to use, the ATR multiple and whether you wish to hang the exit
from the open, high, low or close.
It is recommended that for long positions the exit is hung from
the high and for short positions from the low
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| Re: ATR and Stop Losses by Chris Tate 13. Dec 12:05
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One
of the most vexing questions is the time frame of ATR to use.
The following may assist in your decision
On an analysis of the entire ASX market over the past three
years, the
folllowing statistics are evident:
2 ATR stop loss method
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Using a 5 day ATR, on average 9.5% of stocks exceeded their
expected trading range on any given day
Using a 8 day ATR, on average 8.7% of stocks exceeded their
expected trading range on any given day
Using a 10 day ATR, on average 8.4% of stocks exceeded their
expected trading range on any given day
Using a 15 day ATR, on average 8.0% of stocks exceeded their
expected trading range on any given day
1.5 ATR stop loss method
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Using a 5 day ATR, on average 15.8% of stocks exceeded their
expected trading range on any given day
Using a 8 day ATR, on average 14.9% of stocks exceeded their
expected trading range on any given day
Using a 10 day ATR, on average 14.6% of stocks exceeded their
expected trading range on any given day
Using a 15 day ATR, on average 14.0% of stocks exceeded their
expected trading range on any given day
1 ATR stop loss method
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Using a 5 day ATR, on average 38.3% of stocks exceeded their
expected trading range on any given day
Using a 8 day ATR, on average 38.0% of stocks exceeded their
expected trading range on any given day
Using a 10 day ATR, on average 38.0% of stocks exceeded their
expected trading range on any given day
Using a 15 day ATR, on average 38.0% of stocks exceeded their
expected trading range on any given day
Expected trading range is defined as:
Between Close less stop loss and Close plus stop loss
This shows the advantage of using a 15 day ATR instead of a far
shorter term
ATR for calculating your stop loss and the relatively
uselessness of a 1ATR
stop loss (you'll be stopped out around 38% of the time on the
next day!).
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