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ATR for Stop Loss
Started:November 16th, 2016 (08:17 PM) by Rockford Views / Replies:221 / 8
Last Reply:November 17th, 2016 (05:46 PM) Attachments:0

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ATR for Stop Loss

Old November 16th, 2016, 08:17 PM   #1 (permalink)
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ATR for Stop Loss

Hi,

I trade on Sierra Chart. I have typically used a set stop of 10-12 ticks trading NQ. I want to start watching the ATR to track volatility.

Today the ATR averaged around 2.40 this afternoon. This may sound somewhat naive, but does the 2.40 represent points or ticks?

Thanks

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Old November 16th, 2016, 08:17 PM   #2 (permalink)
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Old November 16th, 2016, 08:46 PM   #3 (permalink)
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Rockford View Post
Hi,

I trade on Sierra Chart. I have typically used a set stop of 10-12 ticks trading NQ. I want to start watching the ATR to track volatility.

Today the ATR averaged around 2.40 this afternoon. This may sound somewhat naive, but does the 2.40 represent points or ticks?

Thanks

It should be points, less than 3 ticks ATR for an afternoon at the NQ seems waayyy too low.

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Old November 16th, 2016, 09:46 PM   #4 (permalink)
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SoftSoap View Post
It should be points, less than 3 ticks ATR for an afternoon at the NQ seems waayyy too low.

Thanks for the comment SoftSoap.

I have never used the ATR for a stop loss before, and that's what confuses me. It's easy for me to understand using it for stocks. Ex: .23 meaning 23 cents, and using a factor of x 2 = .46 cent stop.

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Old November 16th, 2016, 09:50 PM   #5 (permalink)
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Rockford View Post
Thanks for the comment SoftSoap.

I have never used the ATR for a stop loss before, and that's what confuses me. It's easy for me to understand using it for stocks. Ex: .23 meaning 23 cents, and using a factor of x 2 = .46 cent stop.

It should be easy to adjust to. NQ 1 pt = 4 ticks
So if ATR is 2.4 pts, you'd have to round it up to the nearest fraction of 0.25 which in this case is 2.5 pts or 10 ticks to set stop loss.

Hope that makes sense!

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Old November 16th, 2016, 11:40 PM   #6 (permalink)
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SoftSoap View Post
It should be easy to adjust to. NQ 1 pt = 4 ticks
So if ATR is 2.4 pts, you'd have to round it up to the nearest fraction of 0.25 which in this case is 2.5 pts or 10 ticks to set stop loss.

Hope that makes sense!

Thanks SoftSoap,

Yes, I guess it means Points and not ticks, but think about this... What they say is, take the ATR and figure 2 to 3 times the ATR for a stop loss...

2.5 points x 2 = 20 ticks (4 pts)
2.5 points x3 = 30 ticks (7.5 pts)

Those are some very wide stops. I usually use a 10 - 12 tick stop. I just want to be sure I'm looking at this in the right way.

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Old November 16th, 2016, 11:56 PM   #7 (permalink)
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I only watch the ATR on longer term charts so I can't say for sure but I'm pretty sure that 2.4 is relatively low for the NQ. During the morning session you can expect that number to be like 5 pts at least. So you'd be going for some even bigger stops than that

Some stuff can't translate as easy between markets I guess.

You might want to talk to whoever came up with the guideline that you've mentioned and bring this up. But from a problem solving standpoint you could probably back test different multipliers on the ATR and come up with a number that makes more sense for the NQ than between 2-3.

Sorry I couldn't help out more than that, I've never set stops or targets around ATR.

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Old November 17th, 2016, 04:24 AM   #8 (permalink)
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Thanks SoftSoap,

Yes, I guess it means Points and not ticks, but think about this... What they say is, take the ATR and figure 2 to 3 times the ATR for a stop loss...

2.5 points x 2 = 20 ticks (4 pts)
2.5 points x3 = 30 ticks (7.5 pts)

Those are some very wide stops. I usually use a 10 - 12 tick stop. I just want to be sure I'm looking at this in the right way.

The reason you would use a multiple of ATR to determine a stop-loss is so that your stops automatically adjust to current volatility levels. You can adjust your multiplier 1 which will have you at a 10-tick stoploss at current volatility levels. Once you have tested this a bit, you can determine if you wish to adjust your multiplier to a different number.

Based on your ATR number, I am guessing you aren't looking at daily charts. You could also look at daily charts, get yesterday's ATR and just use a smaller multiplier, i.e. something like 0.2, to calculate your stops for today. That simplifies the method a little. If you wish to exploit low-vol times during the day, then this may not work for you.

Where ATR really shines is if you trade different instruments and want to normalise volatility across them. For instance, I can place trades in ZB, CL, NQ and ES and if I have a sufficiently large account, then I can have the exact same $-volatility in each of these trades. The Turtles used this to normalise risk across the various instruments they traded. For instance, if you know your stop is 2 ATR and you wish to risk 2% of your equity on this trade, then the sizing will automatically have a smaller position on CL than on ZB and the normal daily equity swings on each can be "considered" equal since ATR is based on volatility. Just a little bit of useless info to spice up your Thursday.

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Old November 17th, 2016, 05:46 PM   #9 (permalink)
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grausch View Post
The reason you would use a multiple of ATR to determine a stop-loss is so that your stops automatically adjust to current volatility levels. You can adjust your multiplier 1 which will have you at a 10-tick stoploss at current volatility levels. Once you have tested this a bit, you can determine if you wish to adjust your multiplier to a different number.

Based on your ATR number, I am guessing you aren't looking at daily charts. You could also look at daily charts, get yesterday's ATR and just use a smaller multiplier, i.e. something like 0.2, to calculate your stops for today. That simplifies the method a little. If you wish to exploit low-vol times during the day, then this may not work for you.

Where ATR really shines is if you trade different instruments and want to normalise volatility across them. For instance, I can place trades in ZB, CL, NQ and ES and if I have a sufficiently large account, then I can have the exact same $-volatility in each of these trades. The Turtles used this to normalise risk across the various instruments they traded. For instance, if you know your stop is 2 ATR and you wish to risk 2% of your equity on this trade, then the sizing will automatically have a smaller position on CL than on ZB and the normal daily equity swings on each can be "considered" equal since ATR is based on volatility. Just a little bit of useless info to spice up your Thursday.

@SoftSoap You were right, it's Points like we thought. I verified it with Sierra Chart support to be sure. Thanks for your help man.

Thanks Grausch for taking the tme to post that. I really like the Daily chart idea, I'm going to look at that. I primarily trade the NQ in the afternoon on a 2 minute chart. I took the high ATR this afternoon which was 2.73 x 1.5 = 4.09. I used a 4 point stop which gave it lots of breathing room and took 3.25 points this afternoon and had a good day.

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