The Wilder Volatility Stop was introduced by Welles Wilder in his book, “New Concepts in Technical Trading Systems.” Other than the description below, you may also review the Wilder Volatility Stop Indicator Spotlight (with video).
Indicator Description
The Welles Wilder Volatility Stop calculates the long stop by subtracting a ATR multiple from the “significant close” in the lookback period. In an uptrend the “significant close” is located at the highest close since the start of the trend. Conversely, the short stop adds the ATR multiple to the “significant close”. The “significant close” is then the lowest close since the start of the trend.
When used with time based bars, the trailing stop adjusts to the current market environment. This allows for stop widening when volatility increases and tightening when it decreases. Wilder used a default lookback period of 7 bars for his volatility stop.
When used with longer lookback periods, the “significant close” may be replaced with a Donchian channel calculated from the bar closes. Using the Donchian channel is the standard approach for calculating the Chandelier Stop. In that a scenario, a longer lookback period, typically 22 bars, applies. By activating this option, the long stop subtracts a multiple of the ATR from the highest close within the lookback period. Conversely, the short stop adds a multiple of the ATR to the highest close in the lookback period.
The Wilder Volatility Stop also comes with an option of activating the traditional trailing feature. When that option is selected, stop widening is not permitted. By increasing volatility the stop will only move in the direction of the current trend.
The trend information is exposed through a public Series<double>. The trend is accessible for automated strategies, or via the market analyzer.
To learn more about the indicator, please review the Indicator Spotlight post on the Wilder Volatility Stop. Separate Indicator Spotlight posts also discussed the ATR Trailing Stop, SuperTrend and the Chande Kroll Stop.
Other Library Indicators
Other than the Wilders Volatility Stop the following indicators are available from the trailing stop loss category: ATR Trailing Stop, Chande Kroll Stop, Chandelier Stop, Deviation Stop, HiLo Activator, SuperTrend M11 and SuperTrend U11. For specific trading setups where the volatility stop may be used, please review our Indicator Spotlight issues on the Squeeze and the Donchian Channel. Of course, the Library also features the standard ATR indicator.
The Welles Wilder Volatility Stop is available for NinjaTrader 8.