TRADING STRATEGIES
Using Stops, Part 2
by Sylvain Vervoort
In this second of a three-part series we will compare trailing-stop methods using an average true range (Atr) trailing stop.
The average true range (Atr) was developed by J. Welles Wilder and introduced in his book New Concepts In Technical Trading Systems. The Atr indicator measures a security’s volatility. Wilder defined the true range concept as the greatest value of the:
Wilder then calculated an average of this value for creating the average true range.
Like most technical analysis programs, MetaStock has a predefined Atr indicator (Atr (period)). But if you need to calculate it yourself, it can be created as follows:
With this formula you could create an Atr value based on something other than the close, such as an average price.
To create a trailing stop based on the Atr value, you need to calculate the maximum-allowed loss based on the Atr value multiplied by a factor. In Figure 1 you can see the 14% fixed trailing-stop value plotted in red on the chart of Amd. The blue line is the Atr trailing stop based on a five-day Atr average multiplied by a factor of 3.5. Note the Atr trailing buy & sell points on the chart. You would buy (green arrow) when the closing price moves above the trailing stop of the previous day and sell when the closing price falls below the previous trailing-stop value (red Exit sign).
Figure 1: average true range trailing stop. Here you see a chart of AMD with a 14% fixed closing price trailing stop (red) and a 3.5 times five-day ATR average (blue).
The complete MetaStock formula for an Atr-based trailing stop value on the closing price can be found in sidebar “Atr Trailing Stop.” You basically use the same formula setup as with the fixed-percentage trailing stop.
..Continued in the June issue of Technical Analysis ofStocks & Commodities
Excerpted from an article originally published in the June 2009 issue of
Technical Analysis ofStocks & Commodities magazine. All rights reserved. © Copyright 2009, Technical Analysis, Inc.
Using Stops, Part 2
by Sylvain Vervoort
In this second of a three-part series we will compare trailing-stop methods using an average true range (Atr) trailing stop.
The average true range (Atr) was developed by J. Welles Wilder and introduced in his book New Concepts In Technical Trading Systems. The Atr indicator measures a security’s volatility. Wilder defined the true range concept as the greatest value of the:
Wilder then calculated an average of this value for creating the average true range. Eset security daily serials.
Like most technical analysis programs, MetaStock has a predefined Atr indicator (Atr (period)). But if you need to calculate it yourself, it can be created as follows:
With this formula you could create an Atr value based on something other than the close, such as an average price.
To create a trailing stop based on the Atr value, you need to calculate the maximum-allowed loss based on the Atr value multiplied by a factor. In Figure 1 you can see the 14% fixed trailing-stop value plotted in red on the chart of Amd. The blue line is the Atr trailing stop based on a five-day Atr average multiplied by a factor of 3.5. Note the Atr trailing buy & sell points on the chart. You would buy (green arrow) when the closing price moves above the trailing stop of the previous day and sell when the closing price falls below the previous trailing-stop value (red Exit sign).
Figure 1: average true range trailing stop. Here you see a chart of AMD with a 14% fixed closing price trailing stop (red) and a 3.5 times five-day ATR average (blue).
The complete MetaStock formula for an Atr-based trailing stop value on the closing price can be found in sidebar “Atr Trailing Stop.” You basically use the same formula setup as with the fixed-percentage trailing stop.
Atr Trailing Stop Indicator
..Continued in the June issue of Technical Analysis ofStocks & Commodities
Excerpted from an article originally published in the June 2009 issue of
Technical Analysis ofStocks & Commodities magazine. All rights reserved. © Copyright 2009, Technical Analysis, Inc.
Using a trailing stop loss is one of the methods that helps you to manage your positions and take care of your profit. I personally don’t use trailing stop loss, but maybe you are interested in it because of the different trading strategy you have. So, let’s start from the basics of trailing stop loss and then learn how to set it on MT4 platform.
Before You Read the Rest of This Article:
Submit your email to receive our eBook for FREE. This eBook shows you the shortest way to acheive Success and Financial Freedom: What Is Trailing Stop Loss?
Trailing stop loss is a feature that some of the trading platforms, including MT4, support. When you set it on an open position, it moves your stop loss further when the price moves toward the target. For example you take a long position and you set a 100 pips stop loss, and a 50 pips trailing stop loss. Trailing stop loss doesn’t do anything as long as the position is not in profit. However, as soon as the position goes to profit for 50 pips, the trailing stop loss moves the stop loss to breakeven.
After this stage, if the price turns around and goes against you, the stop loss remains at breakeven and the trailing stop loss doesn’t do anything. But, if the price keeps on moving accordingly, the trailing stop loss moves the stop loss one point further, for each point that the position’s profit goes beyond 50 pips. So, if the position reaches 100 pips profit eventually, the stop loss will be placed 50 pips above the entry price.
This is how the trailing stop loss locks your profit.
Note:
Indicator WarehouseHow to Set a Trailing Stop Loss on MT4
It is very easy to set a trailing stop loss on your position on MT4 platform:
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