This is an implementation of the volatiliy based stop that was suggested by Tushar Chande and Stanley Kroll in their book “The New Technical Trader”. Other than the below description, you may also review our Indicator Spotlight post on comparing the Chande Kroll Stop vs. the Chandelier Stop (with video).
Indicator Description
The Chande Kroll Stop is a volatility based trailing stop and will help manage your profits by keeping positions open as long as they move in your favor. Two stop lines are used, green for long positions and red for shorts. You’ll close a long position once prices drop below the green line. Conversely, a short exits occur when prices move above the red line.
Calculating the Chande Kroll Stop
First, the Average True Range of the last 10 bars is found by applying the arithmetic mean calculation formula. For a long stop, the highest high of the last 10 bars is determined. A preliminary stop is then calculated by subtracting a 3 x ATR multiple from the highest high. For a short stop, the lowest of the last 10 bars is determined. A preliminary short stop is then calculated by adding a 3 x ATR multiple from the lowest low.
However, the two preliminary stops have no resets, but continue, regardless of whether the market is in an up- or down-trend. The second step in the Chandelier Stop calculation is therefore to apply a 20 bar reference period. The last 20 preliminary long and short stops are used to plot the levels eventually used for the Chande Kroll Stop.
- The long stop is the lowest value of the last 20 preliminary long stops
- The short stop is the highest value of the last 20 preliminary short stops
With this second step, the Chande-Kroll Stop moves further away from the price than for example with the Chandelier Stop. Therefore, a smaller ATR multiple is generally applied.
Chande Kroll Trend Indication
You may also use the Chande Kroll Stop to spot a trend bias. Green paintbars will plot once price has moved above the fill area between the stop lines. Opposite, red paintbars will plot when price has moved below the fill area. If prices are moving at or within the fill area, you will see gray paintbars.
Furthermore, a blue fill area may confirm your paintbar trend readings. The green line will then move above the red line. A gold colored fill area will indicate a sideways moving market, with the red line moving above the green line.
Opposite, red paintbars will plot when price has moved below the fill area. If prices are moving at or within the fill area, you will see gray paintbars. Furthermore, a blue fill area will confirm a bearish trend / red paintbars with the green line moving above the red line. Again, the gold colored fill area will indicate a sideways moving market, with the red line moving above the green line.
The Chande Kroll Stop is found in our Trailing Stops category along with other indicators designed to protect open profits. The general concept for these indicators is to keep your position open as long as it moves in your direction. These trailing stops are flexible, automatically tracking price and do not have to be manually reset. Positions should be closed if the price goes against the trade by a specified percentage or amount. You may for example consider using it for trade management together with setups generated from our premium Ichimoku Kinko Hyo indicator. The library also features a basic version of the Ichimoku indicator.
Other Library Indicators
Other than the Chande Kroll Stop the following indicators are available from the trailing stop loss category: ATR Trailing Stop, Chandelier Stop, Deviation Stop, HiLo Activator, SuperTrend M11, SuperTrend U11 and the Wilders Volatility Stop. Additional indicators are available from our trend analysis, channel indicators and momentum oscillators categories, such as the Donchian Channel, Daily Regression Channel, Balanced Momentum, Traders Dynamic Index, and the Know Sure Thing (KTS).
The Chande Kroll Stop is available for NinjaTrader 8. Our Indicator Spotlight newsletter also discussed the ATR Trailing Stop and the Wilder Volatility Stop in two separate posts.
