This is my question:
How do you calculate a trailing stop based on the ATR (average true range)?
Let say that the ATR for the past 5 hours is 0.0008 and you decide to buy Eur/Usd with an initial stop at 1.3484 and trace that stop in your direction with a volatility based traling stop of two times the 5 h ATR, how do you do?
Maybe the question is better defined like this:
If I use a two-times-5 hour volatility trailiing stop that is adjusted from the close on a hourly basis only when it moves in favor of the trade for example if after the first hour of the trade, if the price moves in my favor or if volatility shrinks, then the trailing stop moves in my favor, what is the mathematical fomula for trailing such a stop? Can someone please try to explain how to do? What is the mathematical formula?
I hoped someone understod what I meant and can explain in such a way that I could understand how to do. Thank you for your time.
PS: The numbers used in my question is just picked from the air and it is by no way my intention to use those numbers, it was just picked for this question.
I’m a bit stunned, the feedback on this one was a little bit weak I must say…
Anyway I found out the mathematical formulula for calculating the average true range into a trailing stop, and in my example given above (for anyone thats intrested) it would have been:
Though I have not yet been sucessfull in finding a software indicator that calculates this to the pricechart and I lack the programing knowledge to do it myself…
I was looking for a for a trailing stop system. I have a day job and cannot be sitting in front of my computer watching the movement of my trades most of te time. I have been using OANDA as a broker but hated the fact they did not have a trailing stop system - hence when I’ve missed my take profit target and the price reversed in the other direction, I missed out on some big profits. My only option there was set my TP at levels designed to “scalp” profits before the next expected support/resistance level. I’ve missed good profits when price continued through those levels. My trading system was crying for a trailing stop system.
I went shopping. I found CMS and their VT Trader platform. I had liked OANDA for a few reasons, but even as a novice I realized that OANDA’s platform is like a tricycle with training wheels when compared to something like VT Trader.
(I’m not going to go in to detail about the pros and cons about OANDA vs CMS - OANDA’s “low” spreads become larger in market news and volatility and CMS’s decent fixed spreads are no so fixed when you have to account for slippage when your bid/ask was rejected by the dealing desk because price moved away from it before executed when the market was volatile - it’s a wash with the cons of each broker IMO)
Anyhow, check out VT Trader - you can set your trailing stop based on your programming (manually or through a customized trading system you can write using their program language) OR they give you the option of having your trailing stop set at their “optimum” level. Their “optimum” level is based on an ATR formula.
Thanks for the information that you posted (I would love to have posted an answer for you but I did not have a clue as to what you were talking about - never seen or heard of it before).
Having said that - I now know what you were asking - and - this seems like a better way to set trailing stops - so - I am going to try it out.
If you (or anyone else) does not mind please have a look at an example that I would use - I seem to have a very bad habit of misunderstanding things read on this forum).
Example:
MSCI Taiwan:
ATR (14) = $4.2418
Last close = $316.50
(Are you sure by the way that the ATR figure is a $ figure - I always thought that it was a ratio or multiplier or something like that)?
Anyway (following your example):
2 x ATR Stop = $316.50 - ($4.2418 x 2)
= $316.50 - $8.4836
= $308.0164
BUT - on my system the Trailing Stop is set in Pips SO:
