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Registered User
Joined: 11/14/2006
Posts: 6
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I've heard ATR can be used to identify reasonable points for sell stop losses. Would like to ask two questions:
1- Have any readers used ATR to identify stops/trailing stops and if so, was it successful in managing risk?
2- Can TC2000 be used to calculate ATR and if so, how?
Thanks
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Registered User
Joined: 4/10/2007
Posts: 38
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No single concept exists in a vacuum, and ATR stops
are no different.
Curtis Faith discusses ATR stops, breakouts, and positon sizing
in The Way of the Turtle.
It's a great intermediate level trader book written by a real pro,
who learned from some of the best in the business how to bring
some numerical order into the chaos.
Using breakouts to enter & ATR trailing stops to remain is in effect,
a concept wrapped within a concept.
Which works.
ATR is built into TC2000, and SF5, and there is a Telechart
PCF somewhere that will do it using Absolute values.
Recall that TC2000, SF5, and Telechart (TC2007) are three
different products with different strengths in each platform.
Average True Range incorporates the magnitude of the "price gaps" - otherwise
you could just average the highs and lows (the range) and be done with it.
J. Welles Wilder knew he couldn't overlook those gaps in producing
a useful trader metric.
http://en.wikipedia.org/wiki/Average_True_Range
ATR stops work in a clean uptrend if you set it to allow the trade a
reasonable amount of wiggle: say 2 ATR's or more.
It's your choice, of course, and your whipsaw if you over-tighten
the stops too early in the trade.
Curtis discusses the use of other filters (such as price GT 300EMA) to
consider in accepting a given breakout as a buy signal.
C > XAVG300 ... or C > AVG50
Filters for Price GT EMA300 or Price GT SMA50 for example.
He cites extensive backtesting of the broad market as proof of
his hypothesis.
ATR & portfolio size are used to size your position: to objectively
pre-determine your maximum initial trade size & allowable trade loss.
Objective, not subjective.
You are working backward from a possible worst case, and assuming
the worst, first.
Once in the long trade, and the trade is in motion you use the ATR stops
to guide your decision making in adjusting your trailing stops to remain
long or exit.
Short trades are exactly opposite.
I like to use ATR stops with 2h bars, 3h bars, and even
2d bars to avoid some of the whipsaw out of a good idea.
I routinely filter for stocks with the price currently trading
above my comfort level ATR stop price.
1.8 ATR's to 3.5 ATR's
TC2000 Version 11 has a new feature, called "volatilty stops" that
is the same idea, displaying an auto trail stop under the price which
you get to easily self calibrate.
There is a free Van der Voot macro available for ATR TS in SF5's
shared items files, and it plots very nicely.
I use it in a separate tabbed chart window in SF5.
Realcode ATR TS:
'# StartMonth = UserInput.Integer = 1
'# StartDay = UserInput.Integer = 1
'# StartYear = UserInput.Integer = 2009
'# Long1Short2 = UserInput.Integer = 1
'# InitStop = UserInput.Single = 0
'# ATRperiod = UserInput.Single = 5
'# ATRmultiple = UserInput.Single = 3.5
'# Cumulative
Static State As Integer
Static Trail As Single
Static Start As Date
Static TR As Single
Static ATR As Single
Static sumWeight As Single
Static termRatio As Single
If isFirstBar Then
sumWeight = 1
termRatio = (ATRperiod - 1) / ATRperiod
TR = Price.High - Price.Low
If Long1Short2 = 2 Then
State = -1
Else
State = 1
End If
Start = New Date(StartYear, StartMonth, StartDay)
Trail = Single.NaN
Else
TR = System.Math.Max(Price.High, Price.Last(1)) - _
System.Math.Min(Price.Low, Price.Last(1))
End If
Dim Weight As Single = 1 / sumWeight
ATR = ATR * (1 - Weight) + Weight * TR
sumWeight = sumWeight * termRatio + 1
If State = 2 Then
If Price.Last < Trail Then
State = -2
Trail = Price.Last + ATR * ATRmultiple
Label = "Short"
Else
Trail = System.Math.Max(Trail, Price.Last - ATR * ATRmultiple)
End If
Else If State = -2 Then
If Price.Last > Trail Then
State = 2
Trail = Price.Last - ATR * ATRmultiple
Label = "Long"
Else
Trail = System.Math.Min(Trail, Price.Last + ATR * ATRmultiple)
End If
Else If State = 1 Then
If Price.DateValue >= Start Then
State = 2
If InitStop > 0 Then
Trail = InitStop
Else
Trail = Price.Last - ATR * ATRmultiple
End If
Label = "Long"
End If
Else If State = -1 Then
If Price.DateValue >= Start Then
State = -2
If InitStop > 0 Then
Trail = InitStop
Else
Trail = Price.Last + ATR * ATRmultiple
End If
Label = "Short"
End If
End If
Plot = Trail
It isn't supposed to be luck, it gut's,
preparation, and objective entry.
Protect capital with sensible stops.
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Worden Trainer
Joined: 10/7/2004
Posts: 65,138
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One way to write a formula for True Range using TeleChart's Personal Criteria Formula Language would be:
(H -L + ABS(H - C1) + ABS(C1 - L)) / 2
This means you could create a 20-Period Average True Range (Wilder's Smoothed) as a Custom Indicator as follows:
Select Chart Template | Add Indicator | Indicator.
- Visible: Checked
- Center Zero Line: Checked
- Plot using price scale: Unchecked
- Smoothing Average: 39 (twice the ATR-Period minus one)
- Average Type: Exponential
- Indicator Formula: (H - L + ABS(H - C1) + ABS(L - C1)) / 2
You can adjust the Average True Range Period by changing the Smoothing Average in the Custom Indicator. For example, to plot a 14-Period ATR, just change the Smoothing Average to 27 (which equals (14 * 2) -1).
Average True Range formulas for a variety of Periods and Moving Average types are provided in the following topics:
Please provide a description and PCF for calculating an ATR value to be used as a stop loss value
Sir Old Viking Trader and PCFs
20-Day Average True Range
ATR for PCF
5 day Average True Range
-Bruce
Personal Criteria Formulas
TC2000 Support Articles
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Registered User
Joined: 11/14/2006
Posts: 6
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Thanks Monte and Bruce. I'm going to re-read Faith. That's probably where I first heard the term. Looking for new ways to manage downside risk to stay with this market longer.
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Worden Trainer
Joined: 10/7/2004
Posts: 65,138
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duketrade,
You're welcome. Our pleasure.
-Bruce
Personal Criteria Formulas
TC2000 Support Articles
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Registered User
Joined: 12/16/2004
Posts: 5
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I didn't find "how to bring some numerical order into the chaos". Can you check title and tell us the author or ISBN?Thanks!
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Registered User
Joined: 12/31/2005
Posts: 2,499
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QUOTE (georgeu2000) I didn't find "how to bring some numerical order into the chaos". Can you check title and tell us the author or ISBN?Thanks!
Maybe
Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility
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Registered User
Joined: 12/16/2004
Posts: 5
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OK, thanks!
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