Do any of you “seasoned” traders have a good formula for determining a stop based on ATR. Something that can be applied to different timeframes (I’m a swing trade and long-term trader).
I would assume there should be at least two “formulas” depending on the situation such as a “regular” formula and a formula that accounts for a major news event.
It has been told that trying to hedge news events is very difficult as stops on both sides will be taken out. However if one felt fairly confident about which way the market was going to head after the event, a formula to determine a stop that won’t get taken out in the event you guessed the correct post-news direction, bit WOULD get taken out if you guessed wrong - assuming of course you’re willing to eat a sizeable loss if you guess wrong.
Volatility of news events is difficult to predict but I’m just looking for a starting point that I can start experimenting myself with, probably initially on my demo account then on my live account.
Do you intend to trail your stop using ATR? In that case I guess the determining factor has to be how much you’re willing to “give back” to the market.
I’ve read suggestions that a few percent more than the ATR, such as 105-110% ATR would be a good standard level for use as a stop. However, one might want to tighten this if news events with great uncertainty are coming up. Rather than using a very wide stop, you can reenter when the smoke is dissipading.
I’m no pro trader though, just my two pips on the subject.
I used a fixed stop initially. If I get to 50% my profit target, then I change it to a much closer trailing stop to lock in profits but still give some room for it to run. I’m still debating if this is better than just moving the fixed stop up.
But how many intervals should be used for ATR? I think 10 is the standard but I’ve seen others recommend 20. I think it might also be better to use the ATR figure for a chart that is one timeframe lower, like if you trade of daily, use the ATR(20) on the H4 chart so you get an ATR weighted to the more recent volatility?
You know one thing I’m still experimenting with is the best method for moving the stop up.
In general, when I hit 50% profit target, I remove the fixed stop and put in a trailing stop that starts at 25% profit target. So if my profit target is 200 pips, and I reach +100 pips, I set a stop at -50pips so I’m guaranteed at minimum to reach 25% profit and my profits can run as long as it doesn’t retrace more than 50 pips. But like I said I’m still working on perfecting this “strategy.”
On the other hand though, there are of course times will it will retrace 50 pips then go WAY up and I’m kicking myself for setting the trailing stop to close.
I’m thinking instead, maybe I should just set a FIXED stop at 25% profit, and then set an alert for say when I hit 75% profit, then move the fixed stop up to 50% profit, then when I hit 100% profit, put in a real tight trailing stop so I can reap more reward if it continues to go up, but I will quickly cash out if the momentum peeters out. The only problem with this method is that if there is a HUGE run-up and then it quickly retraces, I miss out as I can’t respond to the alert fast enough (I’m not a day trader).
So maybe this is the way to go, use some sort of ATR formula to set initial fixed stop. Set a limit order at 200-300% profit in case I get lucky. Set alert at 50% profit. When reached, move fixed stop up to 25% profit. Set alert at 100% profit. At 100% profit, remove limit order, set trailing stop at 75-85% profit and ride out the momentum (if there is any left).
I really hate using limit orders since I’m not a day trader. I’m willing to take large drawdowns to whether the “noise”. But like I said, if there’s a huge spike I better either have a very high limit that gets triggered or a trailing stop that follows it.
I’m leaning towards using a lower setting such as 9 on daily, since I’m more interested in what the range has been lately.
Setting it to 20 on 4H would give the ATR of the latest 80H, roughly 3,3 days. Well, that seems quite fine to me. I guess there’s no right answer for things like this, we all have to decide for ourselves what works best.
Personally, I might try 12 to get the ATR based on the last two days.
I personally are for using as short periods as possible, as I don’t believe the long past has any great influence in these cases.
I noticed something you wrote:
I think it might also be better to use the ATR figure for a chart that is one timeframe lower, like if you trade of daily, use the ATR(20) on the H4 chart so you get an ATR weighted to the more recent volatility?
Well, if you do so, you get the ATR for a 4H period, not for a whole days range, so that ATR will typically be 4/24 - 1/6 of the daily ATR
I understand your thinking (I think), but then it would be wiser to set the daily ATR to a short period to get the more recent volatility
about the 4 hour chart atr, sounds like you should be trading of the four hour charts not the daily. it sounds like a good way to catch the profits of the day charts that are trending heavily, as in not retracting back at all. but if you are trading on something like aud/jpy at the moment you are just going to take loses every second day.