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duketrade
Posted : Monday, January 3, 2011 10:41:14 PM
Registered User
Joined: 11/14/2006
Posts: 6
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
montecarlos
Posted : Tuesday, January 4, 2011 12:06:43 AM

Registered User
Joined: 4/10/2007
Posts: 38

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.
Bruce_L
Posted : Tuesday, January 4, 2011 9:20:15 AM


Worden Trainer

Joined: 10/7/2004
Posts: 65,138
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
duketrade
Posted : Tuesday, January 4, 2011 8:43:46 PM
Registered User
Joined: 11/14/2006
Posts: 6
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.
Bruce_L
Posted : Wednesday, January 5, 2011 8:24:00 AM


Worden Trainer

Joined: 10/7/2004
Posts: 65,138
duketrade,
You're welcome. Our pleasure.

-Bruce
Personal Criteria Formulas
TC2000 Support Articles
georgeu2000
Posted : Saturday, February 12, 2011 6:45:09 AM
Registered User
Joined: 12/16/2004
Posts: 5
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!
jas0501
Posted : Saturday, February 12, 2011 8:23:16 AM
Registered User
Joined: 12/31/2005
Posts: 2,499
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
georgeu2000
Posted : Saturday, March 12, 2011 3:06:21 PM
Registered User
Joined: 12/16/2004
Posts: 5
OK, thanks!
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