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brownsfan019

Average True Range (ATR)

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In this thread, momentom brought up using the ATR as a trailing stop function and since I know literally 0 about the ATR and it's use, I thought we could have a discussion here about it and not clutter up the other thread.

 

Hopefully momentom can provide us some examples and I will do my best to interact as well.

 

Right now my questions would be what settings to set your ATR at, what number (if any) to multiply that number by (and why) and then how to use that in your trading? In my personal use, I am interested in using this as a trailing stop idea, but I'd like to hear if any are using this as a tool for entering trades as well.

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Its funny...just this morning Linnsoft introduced a new indicator called "Volatility Stop" and its inputs are exactly what momentom specifies. Weird how the universe works sometimes...

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Its funny...just this morning Linnsoft introduced a new indicator called "Volatility Stop" and its inputs are exactly what momentom specifies. Weird how the universe works sometimes...

 

Tin

 

Would you mind posting the code or sending it in a PM so I could have a look

 

Cheers

 

Blu-Ray

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7. New Indicator: Volatility Stop. The Volatility Stop Indicator helps

define the current trend. The indicator plots a red line above the prices

bars when a downward trend is detected, and a blue line below the bars when

an upward trend is detected. These lines are commonly used as trailing

stops. This indicator is commonly used as a exit tool rather than an entry

technique. When price crosses the VSTOP value, the trend reverses and VSTOP

moves to the other side of price. The VSTOP is calculated as follows:

 

VSTOP Calculation

 

When Up Trend Detected....

 

VSTOP = CL - MULT * TR

 

As Up Trend Continues....

 

VSTOP = MAX(VSTOP.1, MaxCL - MULT * TR)

 

When Down Trend Detected....

 

VSTOP = CL + MULT * TR

 

As Down Trend Continues....

 

VSTOP = MIN(VSTOP.1, MinCL + MULT * TR)

 

Where...

 

CL = Closing Price

 

MULT = True Range Multiplier

 

TR = True Range

 

VSTOP.1 = Volatility Stop Value on Previous Bar

 

MaxCL = Maximum Closing Price since Up Trend Began

 

MinCL = Minimum Closing Price since Down Trend Began

 

Trend reverses between up and down when Closing Price crosses VSTOP.

 

RTL Token: VSTOP

 

The RTL Token for the Volatility Stop indicator is VSTOP. A common system

for trading the VSTOP might be to look for closing price crossing VSTOP:

 

Long...

 

CL > VSTOP AND CL.1 <= VSTOP

 

Short...

 

CL < VSTOP AND CL.1 >= VSTOP

 

More information on VSTOP can be found at:

http://www.linnsoft.com/tour/techind/vstop.htm

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here is what I have been using and its worked great... see attached chart for todays action.

 

logic was that if 3 ATR's is a good stop -- then entering on a pullback and using the 3 ATR stop rule will make risk less than 3 ATR's. I have been using 1.5 ATR's as my pullback zone.

 

So in the chart... enter on limit near the lowest yellow line price and put a stop loss in at the lowest red line price -- so your initial risk is roughly 1.5 ATR's (3.0 atr stop with 1.5 atr pullback for entry). This has been working well on a 2-minute chart for me. A good move really shouldn't break the 3 ATR level.

 

fyi, this has nothing to do with a set-up -- this is only the management of a trade once you have decided you like the pattern.

 

man, I am rarely this patient but I really felt like we were going to make a lower low in the afternoon today -- note that it took a full 45 mins before my stop was actually lower than my entry.... but I did get my 'risk' down to 1.5 ES pts after about 20-mins...

 

Easylanguage code for this indicator:

 

value1= c[1]+(avgtruerange(10)*1.5);

value2= average(c,2)[1]+(avgtruerange(10)*3);

 

Plot1(Value1, "+1.5 ATRs" );

Plot2(Value2, "+3ATRs" );

5aa70dfd8f8a3_3ATRStop.thumb.png.a6b3979fae324f00ffc48706da0164a1.png

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hi mark,

 

I exited there for a few reasons. Exits are generally much more complicated than entries but the concepts I was thinking about included:

 

1. my strategy is generally to look to enter somewhere not too far away from VWAP and find an exit once it has moved a good distance away from VWAP.

 

2. note that there was a 400 tick buy divergence on the push to 1451.00

 

3. I was looking for a lower afternoon low --- you can see that this objective was met.

 

net net, the market acheived my objective so I took the gain. waiting for the stop to get hit gives up too much IMO.

 

attached is the buy divergence and a very simple indicator I wrote that marks a dotted line at VWAP +/- 10.00 pts... sometimes it goes less, sometimes more.

 

hope that helps.

5aa70dfd9b5a0_ESBuyDiv.thumb.png.b96e6b276b95392a421a6cf179ba0378.png

5aa70dfda16d0_VWAP-10.thumb.png.89b0727941e6ee28dba86b586db4a133.png

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Good posts dogpile.

 

I started to use ATR trailing stops because I needed something that would adjust to market conditions.

 

The ATR stop, by its very nature, adjusts to the volatility of the market.

 

The use of the inputs 10 and 3 may be a bit arbitrary although the logic is that calculating ATR over 10 bars is short enough to reflect current market conditions but long enough to give a "fair" picture. I keep the stop away by 3 ATRs because I find it far enough away to not be stopped olut unnecessarily most of the time yet close enough to get me out early enough at the end of a move. You might want to try numbers between 2 and 4 ( say every 0.25) if 3 doesn't suit. I'd be wary of over optimisation.

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hi mark,

 

I exited there for a few reasons. Exits are generally much more complicated than entries but the concepts I was thinking about included:

 

1. my strategy is generally to look to enter somewhere not too far away from VWAP and find an exit once it has moved a good distance away from VWAP.

 

2. note that there was a 400 tick buy divergence on the push to 1451.00

 

3. I was looking for a lower afternoon low --- you can see that this objective was met.

 

net net, the market acheived my objective so I took the gain. waiting for the stop to get hit gives up too much IMO.

 

attached is the buy divergence and a very simple indicator I wrote that marks a dotted line at VWAP +/- 10.00 pts... sometimes it goes less, sometimes more.

 

hope that helps.

 

 

Hi Dogpile

Thanks for the chart, that was a very graceful exit.

Mark

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its very similar to a keltner channel trailing stop. keltner channel is based on a moving average and this method is based on just the last close + 3 ATR's.

 

but a 1-min KC (20 period, 2.5 ATR keltner channel) is another method that works pretty well.

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its very similar to a keltner channel trailing stop. keltner channel is based on a moving average and this method is based on just the last close + 3 ATR's.

 

but a 1-min KC (20 period, 2.5 ATR keltner channel) is another method that works pretty well.

 

Thanks Dog

 

So I assume , If I'm short for instance, that the upper band will be my mark for trailing stop rigth??

 

What would be a good setup for the bands on a five minutes charts? 10/1.5?

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I realize this thread has been quiet for a while but was wondering if anyone has similar code that plots like the volatility stop.

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Could anyone suggest a website (or software package) that will show the Average True Range for 1,2,...5 minutes. I am looking for more than just the daily ATR.

 

Thanks in advance.

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Like Many who have posted on this thread previously I am eternally struggling with Exit Strategies.. for ES.

 

I basically trade the same entry but have 3 exits signals for scaling out:

 

1. Fixed target.

2. A Tight trailing stop that ratchets 1.25 points behind the market.

3. ATR Stop.

 

My trade unit is a 3 lot.

 

I hoping there might be traders here who have found better ways of managing exits/open trades... This is a long-term ongoing conundrum for me...

 

#1. Fixed Short range target for a high probability win.. Almost 1/1 RR.

#2. After 1st Lot exited stop brought even on #2 and trailed tic for tic.

#3. Stop B/E same as #2 but trailed behind ATR.

 

Anyone have a succesful process or any other tools that successfully attack this issue?

 

I'd appreciate hearing from you.

 

Thanks,

 

Tom

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