What is ATR Trailing Stops Indicator (Trading Strategy)

ATR Trailing stops indicator helps you to enter and exit from the stock also one of the best indicators that helps you to find stop loss (SL). Exit point.

Explanation

A big investor always knows where have to enter to the stock, and where have to exit from the stock. but retails investors always confused about it. and this indicator will help you to know where you can enter to stock and where you can exit from the stock.

Also, Traders use this indicator with market trends so that they can earn the maximum amount of profit. see the below picture.

ATR Trailling stop
above this Image is downtrend and in a downtrend, this indicator works fine. if traders short sell this stock. this indicator help traders where to exit. in this chart red dots are SL point suggested by ATR trailing stops. if stock price hit or break red dots then traders can exit from the stock.
ATR trailing up trend
Similarly, if stocks in an uptrend then see the chart. following this indicator help you, where to exit from the stock. The green dots line is the SL suggestion by this indicator. after breaking the green dots line traders can exit from the stock.

Example: suppose you have brought an X company’s stock and currently X company’s stock trading at $10 and ATR Trailing stops indicator suggest stops loss at $9. if stock price gain to $15 then ATR Trailing indicator suggestion SL will increase. it can be $12( assumed). In one word This indicator suggesting SL will increase or decrease with the stock price.

ATR Trailing Stops indicator setting

Go to indicator section > search For ATR Trailing Stop

ATR trailing stops setting

Calculation of ATR trailing stops

Let’s have an example: Suppose, X stock 21 days ATR price(ATR means high and low’s difference) . Here 21 days high and low’s difference respectively 5,6,2,6,4,6,2,7,4,1,7,4,3,4,6,5,4,2,3,2,5 .

21 days ATR will be: (5+6+2+6+4+6+2+7+4+1+7+4+3+4+6+5+4+2+3+2+5)/21=4.19

Here, 21 days ATR trailing stops indicator stop-loss calculation
MultiplierStop-loss calculation
If we use 1 multiplierthen the stop-loss calculation will be 1 ✕ 4.19=4.19, so this indicator will use 4.19 stop loss (SL) to both sides (upper side or lower side) from the current price, base on market trend.
If we use 2 multipliercalculation 2 ✕ 4.19=8.38 SL.
If 3 multiplier3 multiplier defaults in this indicator, the calculation will be 3 ✕ 4.19=12.57
For 4 multiplier4 ✕4.19= 16.76. so this will be SL from the current price.
FormulaMultiplier Number ✕ periods ATR=stop loss. ( one thing you have to understand that you can set the “Multiplier” number base on stock volatility. if the stock price is too much volatile then you can add a high “multiplier” number so that the calculated stop loss will be big. and stock price cannot hit stop loss frequently.

if the stock price is less volatile then add minimum “multiplier” number is good. It totally depends on you and stocks, how much “multiplier” is good for you. base on stock volatility.

This indicator helps you to both sides. if you buy stock or if you short sell a stock. in both situations, this indicator helps you. But if the stock price is almost flat then this indicator will confuse you. this indicator will hit SL multiplier times in a flat trend.

ATR Trailing Stops Indicator Trading Strategy

The main use of this indicator is, you can use this as a SL price finder. if the market is trending then use this for trail your stop loss.

the increase with the price your stop-loss price will automatically up. so that you can make the maximum amount of money.

Similarly, when the share price is falling and you took the short-selling position, then your SL price will automatically be going down. so that you can earn the maximum amount of profit.

Conclusion

ATR Trailing stops indicator helps you to find exit points of the stock. This indicator generally works fine in a trend. It can be uptrend or downtrend but if the share price is almost flat in this case this indicator will not work properly.

*Read related Post for more information.

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