Using Average True Range to set stop loss
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  1. #1
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    Smile Using Average True Range to set stop loss

    Has anyone use Average True Range to determine their stop loss? I have been on several websites that say that the Average True Range is a great option to establish your stop loss.

    NesmithDJ

  2. #2
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    Good Question. I usually just place my stops about 5 pips away from a major fibo or pivot point line, or after the wicks of a hammer or major candlestick pattern like a morning or evening star or a bearish or bullish engulphing pattern, or even at a pyscological point of a double or triple 0. This doesn't answer your question but I will keep watching since I am intertested as well. By the way, welcome to babypips since I see you are new!!!


    Quote Originally Posted by nesmithdj View Post
    Has anyone use Average True Range to determine their stop loss? I have been on several websites that say that the Average True Range is a great option to establish your stop loss.

    NesmithDJ

  3. #3
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    Default Calculating Average True Range for Stop Loss

    Thank you. I figured out how to use the ATR to set up Stop Loss. All you do is subtract a multiple of the ATR from the entry price. I might take 2 times the multiple of the ATR and subtact it from the price. For example, say that I have a one dollar stock and its Average True Range vale was five cents. So two times our ATR is ten cents, subtracted from our entry price gives us a stop loss value of 90 cents.

    Try it and see if it works.

  4. #4
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    Hello guys

    This is my first post as I am new to babypips and fx.

    i have been reading over old threads and came across this one. As there hadn't been many replys to it I thought I would ask the question again 'Has anyone use Average True Range to determine their stop loss? '

    I am interested to know if people use ATR's for stop losses and what ways is an ATR used?

    Cheers
    T

  5. #5
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    Hello,

    n95girl:

    I attempted a reply to you on the 'Visitors' thing.

    Regarding ATR:

    I use a percentage of the ATR value plus the high or subtracted from the low for order placement. I do not, however, use stop losses so this is a totally different scenario from using a 1 x ATR or a 2 x ATR to place stop loss orders i.e. my 'stops' are always SAR's (stops and reverses).

    If I may give you and anyone new to trading some advice:

    If you want to trade and make real and consistent profits then really: your only option is to trade the trading systems detailed in 'New Concepts In Technical Trading Systems' by J. Welles Wilder Jnr. Believe me: I have tried every system 'known to man or woman' and I've always 'come a cropper'. Now: those are the ONLY systems that I trade (well, I SHOULD say, those are the only systems that I trade and make money with i.e. I tend to 'stray' now and then from these systems through sheer boredom and invariably end up making a mess of things and then revert BACK to the systems to cover up my mess)!!! I'll get it right ONE FINE DAY!!!

    I can ALSO tell you this: you'd be surprised about just how much DISINFORMATION there is out there regarding the CORRECT use of ATR, RSI, ADX, ADXR, etc. etc. etc. Wilder designed all of those indicators and, in the book, explains how to use them CORRECTLY which, most of the time, is simply not detailed on a website. Believe me: it makes a big difference and, in most cases, is the difference between making money and losing money!!!

    Regards,

    Dale.

  6. #6
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    Dale, you don't have to be trading Wilder to make money, nor to have read his books to use ATR for stops. Though I swear I'll give it a read sometime!

    N95, broadly speaking, the higher the ATR, the greater breathing space you'll need for your trades (ie, the wider the stop).

    What you use depends on your strategy and length of time you're in a trade, but to give you an example I use the hourly ATR over 14 days (so 336 periods) as my stop for entering in reversal trades (ie points I expect price to reverse). The only way you'll know if this is profitable is by backtesting, forward testing then real trading. For my strategy - this works out consistently to be the best figure.

  7. #7
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    Hello,

    Well: you're probably right. What I SHOULD have said is that it's the only way that I (ME) can make money!!! The reason being is that the systems leave NOTHING to the imagination or traders emotions i.e. you just simply have to trade them 'blindly' and 'mechanically' which, unfortuantely, does cause a problem AGAIN for ME anyway i.e. I tend to get bored trading that way and inevitably I start messing around with other stuff which ALWAYS results in disaster for ME. I then use the only trading systems that work for ME to cover up my most recent mess and then the cycle repeats itself!!! I could save myself a whole lot of time and money and stress by just sticking to what works for ME!!!

    As a matter of fact: Wilder sums ME up very nicely in this quote from 'the book':

    'I know traders who can never seem to hang on and follow a good system because of a compulsive need for action. I know other traders who have a greater need to be right most of the time than they have a need for the money they can make' (J. Welles Wilder Jnr. from 'New Concepts In Technical Trading Systems', 1978).

    (It used to be my signature but I see our signatures have been removed because certain people were abusing them by putting links in them)!!!

    Regards,

    Dale.

  8. #8
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    By the way:

    I do want to add this, however, to support my earlier post where I mentioned that buying the book is important if you're going to be using Wilders indicators (although I have to admit that it's not that important if you're using Wilder's ATR for stop loss order placement):

    What I was 'getting at' was something like this:

    For instance: most people (or should I say most broker or forex sites) will tell you that if you're using ADX to trade then you buy or sell based on the crossing of +DI and -DI. I can tell you that this is NOT the way to trade is you're going to be using ADX to trade!!! There are at least three other rules to be followed as per 'the old man' if you're going to trade using ADX and I've not seen these rules detailed anywhere on the Internet!!! Simply buying or selling based on the crossing of +DI and -DI will almost always cost you money.

    Do you see what I'm getting at??? Most of these sites only give you the 'stripped down' versions of most trading systems and that's a problem.

    Anyway (as I said); I'd agree that it's not necessary if you're using ATR purely to calculate the value of stop losses.

    Regards,

    Dale.

  9. #9
    akeakamai is offline Banned FX-Men Honorary Member
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    I use ATR to set my stops but not in a way easy to explain. I always keep an eye on it to get a sense for how volatile the trading is, but just in a general way. It contributes to the final decision, but so do S&R levels as well as how long I expect to be in the trade. Hope this helps

    Hey Dale, I remember when you were first getting into Wilder's systems, you sure have turned it into an obsession! Good to hear you are making consistent profits, I am too now, but only using price as an indicator!

    Is it safe to assume you made back all that money from the beginning? Either way you seem to be on the right track.

  10. #10
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    Dale, your enthusiasm is infectious for Wilder, you're not part of his estate are you?

    It's only a matter of time before I crack and read his book

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