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Dynamic Trailing Stop and Profit using ATR


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Dynamic Trailing Stop and Profit using ATR

  #11 (permalink)
Enric66
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grausch View Post
If you wish to learn about the application of ATR then the following book may of interest to you - Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders: Curtis Faith: 9780071486644: Amazon.com: Books.


Tymbeline View Post
in his book Trade Your Way to Financial Freedom Van K. Tharp details several examples of trading methods (mostly for commodities, as I remember) for which an ATR multiple proved a stable, consistent and productive method of trailing a stop.

Thanks for the references!

What about the Wilder's book? Wouldn't it be better going to the source?

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  #12 (permalink)
 grausch 
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Enric66 View Post
Thanks for the references!

What about the Wilder's book? Wouldn't it be better going to the source?

I am afraid that I have never read the Wilder book, thus can't give any insights on whether it is better or not. The reason I showed the link to the book was that the entire Turtle System is explained in detail. Most of my experience with ATR comes from those principles - the rest of the book is good too if you are interested in LTTF systems.

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  #13 (permalink)
 
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 trendwaves 
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An important advantage of using something like an ATR based stop/profit strategy is the consistency it enforces over the trading method. I personally use PSAR, and like it very much for that very reason, the stable consistency it brings to my trading performance. The excellent anaSuperTrend developed by FatTails is another wonderful tool one can consider.

Tools like these remove the trader from the heat of the moment need to 'act fast' or decide on the fly what to do. The levels are set objectively and consistently. Reduction of stress during the trading day and consistency are both a blessing over the long term of a trader's career.

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  #14 (permalink)
 
FABRICATORX's Avatar
 FABRICATORX 
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For stops:

I do 4-6 SD of the ATR of the opposite direction of the trade only.

So if I am long, I set my stops at the ATR of open/low range for x bars.

If I am short, I set my stops at the ATR of open/high for x bars.

The variable x is different for each, and I treat shorts/longs independently.

For Profit Targets:

I have no freaking clue. Nothing I do works. I do as @kevinkdog suggested and pick a price level. I actually use options open interest and volume of that same OI level to pick my profit targets. If it doesn't hit, then I just close my trade at end of day.

Disclaimer: I trade daily bars, one trade a day. I set profit and loss at beginning of day and let it ride out.

Some of your guys' ideas are neat, and next on my list to try.

-Jimmy
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  #15 (permalink)
 
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 FABRICATORX 
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trendwaves View Post
An important advantage of using something like an ATR based stop/profit strategy is the consistency it enforces over the trading method. I personally use PSAR, and like it very much for that very reason, the stable consistency it brings to my trading performance. The excellent anaSuperTrend developed by FatTails is another wonderful tool one can consider.

Tools like these remove the trader from the heat of the moment need to 'act fast' or decide on the fly what to do. The levels are set objectively and consistently. Reduction of stress during the trading day and consistency are both a blessing over the long term of a trader's career.

@trendwaves

This is a neat idea, one I've never looked at. Thanks for that.

I concur with the rest of your sentiment though, as "rules" make things binary; you either do, or don't. But the PSAR is realistic as it provides flexibility throughout the day.

Do you apply PSAR without modification? If you adjust it to your market, could you give me an example of that?

-Jimmy
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  #16 (permalink)
 
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 trendwaves 
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FABRICATORX View Post
@trendwaves

This is a neat idea, one I've never looked at. Thanks for that.

I concur with the rest of your sentiment though, as "rules" make things binary; you either do, or don't. But the PSAR is realistic as it provides flexibility throughout the day.

Do you apply PSAR without modification? If you adjust it to your market, could you give me an example of that?

The default PSAR works fine, so I don't mess with it. You can speed up or slow down the speed by adjusting the Acceleration Max setting, a larger number is faster, smaller number is slower, but doing so either way is a trade-off. With a faster setting you will reduce the time in a trade, and conversely with a slower setting you will increase the time in the trade. If you speed the dot's up, you will get faster exits, which in some cases results in an improved exit (you give less back on the exit), but you also have more premature exits which eventually gives that perceived advantage right back. The default setting seems to give a reasonable average exit when tested over enough trades and various market conditions.

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  #17 (permalink)
 
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 FABRICATORX 
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I appreciate you sharing your experience in this.

I will consider it in future setups, thanks!

-Jimmy
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  #18 (permalink)
Enric66
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trendwaves View Post
I personally use PSAR.

I looked at PSAR and I like its overall idea but always got better results with ATR or MA instead of PSAR. Maybe I should take another look at it

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  #19 (permalink)
 
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 FABRICATORX 
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In my brief testing with PSAR, I have found that some systems perform best with it, and some do worse with it.

So, try it all!

-Jimmy
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  #20 (permalink)
Enric66
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FABRICATORX View Post
I have found that some systems perform best with it, and some do worse with it.

So, try it all!

I had the feeling that would be the proper answer

Any case, when I tested exits based on PSAR and compared with MA or ATR I've always finished discarding PSAR, and it's a pity because I've read something on PSAR and the concept behind it is quite appealing. It is still pending to me the Reading of Wider's book (on my top To-do list) to try to clarify its right use.

On the other side I've been trying to figure out a 'general rule' on when to use ATR or MA regarding the kind of strategy. Still in progress...

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Last Updated on September 30, 2015


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