The average true range is commonly used for setting a stop loss and also trailing a stop loss. One strategy for using the ATR to set your stop loss is using a multiple of the average true range. For example; you may set your stop 2 x the ATR away from the current price. I just installed your atr-trailing-stop indicator on my Mt4 charts. Great indicator! Only the distance from the candle tail to the indicator line doesn't match the default multiple of 3 x ATR. Please explain to me how the distance from the candle tail is calculated. What don't I see? For a long trade, move stop loss and below the low of each subsequent candlestick that continues to make Higher Lows. Or if on the daily time frame, you may try to use a 50-80 pips trailing stop. If on the 4 hr time frame, use 25-40 pips trailing stop. Use an ATR trailing stop; Use trading stop placement tips from this article.
ATR Trailing Stops Indicator is derived from the idea of Average True Range, introduced by J.Welles Wilder. The main purpose of ATR is measuring the volatili. ATR Trailing Stops. The ATR Trailing Stops indicator sets trailing stops to close positions based on the average true range. Wider stops indicate more volatility, while narrower stops indicate less volatility. Configuration Options. Multiplier: Multiples vary between 2.5 and 3.5 ATR, with 3 being the default.
Cut your losses short and let your winners ride.
Timeless trading advice.
But how do you actually do that?
The first part is simple…use stop losses.
The second part is a lot more complicated.
One way that profitable traders maximize their winners is to trail their stop losses. It's not the only way to do it, but it works for a lot of traders.
So in this post, I'll give you 7 effective trailing stop methods that could dramatically increase the profitability of your trading strategies.
I've seen these methods work for other traders and a couple work for me.
Remember that successful trading is all about figuring out what works for you. These strategies can work well with some entries and not so great with others.
Always test your current exit strategy against a trailing stop loss, before using it in live trading.
Also remember to try one thing at a time. Before you move on to the next exit strategy, have some hard data on why a certain type of trailing stop doesn't work well for you.
It's common for traders to give up on a strategy, just because they had a few losses. If you jump from one strategy to the next without a plan or any data, you are going to take a ride on the Trading Silodrome…and that's the kiss of death for any trader.
Alright, here we go…
1. R Trailing Exit
This trailing stop loss uses multiples of risk and can be an easy way to automate your stop loss strategy. Let's say that your stop loss is 100 pips.
So when your trade is 100 pips in profit, you will move your stop loss to breakeven. Then when your trade is 200 pips in profit, you will move your stop loss to +100 pips. When your trade is 300 pips in profit, you move your stop loss to +200 pips…
…and so on.
The drawback of this method is that it doesn't take market volatility into account. So you might get stopped out in very volatile market conditions.
Now, using the risk multiple can factor in volatility a little because your stop loss will tend to be a little wider in more volatile market conditions. But the levels are not adjusted according to indicators like Average True Range (ATR) or other similar measurements of volatility.
This method also might not work well with very volatile currency pairs or pairs with large spreads. So you also need to consider those elements.
But there is also a big benefit to this method…
This method eliminates any second guessing as to when and where your stop loss should be moved. You don't have to second guess support/resistance levels, or worry about indicators that can change with every tick or repaint.
Once you set your stop loss, you know exactly when your stop loss needs to be moved.
You can either set price alerts on your charts manually with TradingView, or you can use a MetaTrader 4 indicator at each R-level.
Another way to do this is to use an automated Expert Advisor (EA) for MT4, like this one.
2. PSAR Trailing Stop
The Parabolic SAR was invented by Welles Wilder and it can be a good way to see when momentum could be coming to the end. As you can see in the chart above, the indicator can be a good way to lock in profits in a trend.
This indicator can cut your profits short. But this can happen with any exit strategy.
The important thing to figure out is if this method gives you an edge in the markets. Be sure to backtest the strategy and keep track of your missed trades.
This exit strategy is pretty forgiving when it comes to riding trends. The indicator gives a good stop loss cushion when markets are moving fast, but tightens up the stop when things get quiet.
3. X-Bar Trailing Exit
Atr Trailing Stop Mt4 Indicator
Another way that you can trail your stop loss is to use the highest high, or lowest low of the last X-number of bars. For example, let's say that you use a 3-bar exit.
If you go short, you would move your stop loss to the highest high of the last 3 bars. You could also add a criteria that the trade needs to be at least 1R in profit, before you start trailing the stop.
This can create a fairly tight stop loss and you will probably get stopped out pretty often, before you catch a runner. So if you are the type of trader that needs to win a lot, then this might not be the exit strategy for you.
Like the other methods in this post, this trailing stop might not work with your entry signal. So test, test, test…before taking it live.
There's no second-guessing when you need to move your stop loss. The exit strategy is very straightforward and can be automated.
This method can help you catch big moves, while keeping your losses small. Traders who enjoy the satisfaction of catching the occasional multi-R runner, should probably test this strategy.
4. Support and Resistance Trailing Stop
You can also wait for support or resistance levels to form during the course of your trade to move your stop loss.
Support and resistance levels can be very subjective.
If you aren't very sure of what a solid support/resistance level looks like, you can start to second guess your trading decisions. You really need to practice this method to become confident in this exit method.
Out of all of the exit methods on this list, this one provides the most latitude to improvise. Obviously this freedom can be a double-edged sword.
But for traders who perform better with a more intuitive approach to trading, this can give them the leeway to be more flexible in their exit, while locking in those sweet profits.
5. Bar Plus Trailing Stop
This method is similar to the X-bar trailing exit, but you would trail your stop loss on every new candle, plus a certain number of pips, to give you a cushion. A popular way to add a cushion is to add a percentage of the Average True Range (ATR) indicator.
For example, you could add 50% of the current ATR value to the high or low of a candle. If the current ATR value is 60 pips, you would simply add 30 pips to the high or low of each candle to determine your stop.
You could get stopped out very quickly in low volatility market conditions. Games ben ten 10 samurai games. But again, that could happen with any trailing stop method.
This is another cut-and-dry exit strategy and eliminates any guesswork. It can also be partially automated.
If this strategy works for you, a simple EA could be used to trail your stop loss while you are away from your computer.
Don't know how to code EAs?
No problem, this list of programmers can help you create the EA you need.
6. Moving Average Trailing Exit
Another way that you could trail your stop loss is to use a moving average. Every time a new bar prints, you would simply move your stop loss to the moving average price of the last bar.
A popular moving average is the 20 exponential moving average (20EMA). That can be a good place to start, but you should certainly test various types and periods of moving averages.
Like the other exit methods on this list, you can get stopped out “too early.” But if you have tested the strategy and are comfortable with how it works, then you will become comfortable with this and realize that it's all part of the game.
This is another black-and-white trailing stop method that is easy to automate. No second-guessing here.
7. 1R Breakeven
The simplest trailing stop that you can use is the 1R breakeven trailing stop. This is when you move your stop loss to breakeven when price hits 1R, or one multiple of risk.
For example, if your stop loss was at 100 pips, you would move your stop to breakeven when your profit hit 100 pips. So if you went short on this chart, you would move your stop to breakeven as soon as price hit the bottom of the green box.
Yes, this isn't technically a trailing stop loss because it doesn't trail price for the duration of the trade. But it's a simple way to prevent yourself from taking a full loss.
Moving your stop to breakeven can stop you out before your trade goes uber-profitable. So you have to test to see if a 1R stop would work well with your trading strategy.
On top of that, you still have to figure out where to take profit.
But this one simple tweak can reduce your average loss, which can improve the overall return on your account.
There can be two important benefits to moving your stop loss to breakeven. First, you can lock in a trade that is going in your direction. That can lift a huge weight off your shoulders and allow you to see the charts more clearly.
Second, once your trade is locked in at breakeven, this gives you the freedom to take more trades. When you take more trades, you increase the number of times that you apply your edge.
The trailing stop that you use will depend on your entry method and your Trading Personality.
If you are looking for a way to let your winners run, test out a few of these strategies. You can also use a split entry to take advantage of a trailing stop, while still using whatever works for you right now.
Then again, you might not want to use a trailing stop loss at all, it might be better for you to set a take profit level.
All that matters is what works for you.
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An ATR trailing stop is one way to manage a trade at both the time of entry as a stop loss setting and if it evolves into a winning trade by exiting when the price reverses far enough to trigger a trailing stop exit.
This type of trailing stop uses the technical indicator of the Average True Range which is a measure of the magnitude of current price volatility, it is a moving signal and expands as the trading range grows and contracts as the trading range gets smaller.
This process is based on the fact that the ATR is a measurement of the average volatility of the price action in a set time period. This is a mechanical trailing stop and is quantified taking away the psychological pressure of discretionary decision making about where to set an initial stop-loss at entry and where to exit a winning trade based on a trailing stop.
The Average True Range technical reading is calculated with the daily price range change and uses the greatest of three possible readings: ‘high minus the previous close’, ‘previous close minus the low’ or the ‘high minus the low’. For an ATR trailing stop the 21-day period average ATR is commonly used. A multiple of 3 is plotted with the ATR on the chart as a visual trailing stop to use for signaling in most cases.
In the case of a long position the 3 ATR would be trailing below the price on the chart in the case of a short position the 3 ATR would be trailing above the price.
The ATR is a moving indicator and changes with the degree of volatility in price action. It will be wider range in highly volatile charts and tighter in less volatile charts. A 2 ATR trailing stop can be used in extremely volatile markets to lower the risk of the distance to the stop loss or trailing stop.
Atr Trailing Stop Pdf Files
Using an ATR trailing stop starts at entry, if price gets lower than 3 ATRs away from your entry price you exit for a loss at that technical level. If your trade is a winner then you exit the winning trade when price reverses lower than 3 ATRs.
Mql4 Atr Trailing Stop
Using an ATR trailing stop is a type of trend following system that allows your winners to run and cuts your losses short while also giving room for a trade to work out without a premature exit.
The ATR trailing stop is a risk management tool and exit signal used after an entry signal is taken and not a signal to buy.
Atr Trailing Stop Formula
This is a mechanical way to manage your trade exits.
Chart Courtesy of TrendSpider.com