The ATR Trailing Stop

ATR Trailing Stop for NT8

This Indicator Spotlight will look at a general trailing stop definition and specifically how it can be applied to Average True Range (ATR). The ATR responds to volatility, highlighting possible trend changes. Therefore, instead of using a fixed tick or percentage of capital as a definition for our stop and trailing method, the current volatility determines the risk. To learn more about the ATR trailing stop indicator , check out this video, or continue reading below:

Definition of a trailing stop:

A trailing stop is a fixed stop price below the market price of the instrument you’re trading, along with a method to trail that stop level, should the market move in your favor. In a long position, the ATR trailing stop will move up together with rising prices, whereas if the market falls, the stop loss price will not change. A market order will then trigger when the stop price is hit.

Accordingly, a limit on the maximum possible loss is set, without limiting the maximum possible gain. The trailing stop orders for short positions are the inverse, the stop will move to the downside together with falling prices.

The Average True Range

Introduced by Welles Wilder in his book, “New Concepts in Technical Trading Systems”. The ATR is an average of the following, as defined by the greatest of:

  • The current high, minus the current low
  • The absolute value of the current high minus the previous close
  • The absolute value of the current low minus the previous close
ATR Calculation
ATR Calculation

Using the ATR Trailing Stop:

Generally, the stop should be placed at a multiple of anywhere between 2 and 4 of the ATR. We’ve set the default value to 3.5 to accommodate for more volatile instruments.

However, because the ATR responds to volatility, the indicator will also highlight possible trend changes. Accordingly, the ATR trailing stop indicator may also be used for stop and reverse systems. For example, a short position could then trigger once the long stop level is hit and vice versa. However, such systems will only be profitable in strongly trending markets.  During sideways and choppy price action they will generally relinquish all the profits (and more).

One may also use the ATR trailing stop to identify retracement and reversal patterns in the direction of the trend. One may then enter positions with a favorable risk reward ratio close to the stop level.

ATR Trailing Stop for NT8
ATR Trailing Stop for NinjaTrader 8

Exits, not entries

The ATR trailing stop is primarily suitable for defining exits, not entries. However, it is also possible to use the indicator for trend bias, using candlestick patterns to identify directional entries.

You may find additional trailing stop indicators, such as the Super Trend, Chande Kroll and the Chandelier Stop in the Trailing Stop category of our NinjaTrader indicators library. Other Indicator Spotlight posts furthermore discussed the ATR Trailing Stop, Wilder Volatility Stop and the Chande Kroll Stop.

More information on the ATR stop trailing indicator is available via the below link:

The indicator is available for NinjaTrader 8.

Tutorials and Templates 

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The ATR Trailing Stop