# Stop Loss - Average True Range

#### dpr

##### Newbie
3 0
Hello,

I have read a few articles recently regarding traders who use the Average True Range (ATR) to formulate a stop loss system. Essentially, from what I understand the ATR looks at the volatility or “noise” in the market over a set period of time.

Setting a stop loss is a grey area for me, as it seems there are no hard and fast rules. One article for example, suggested obtaining the ATR for the last 20 days, using a multiple of this (e.g. multiplying this by 2), and setting the stop loss just below this figure.

However, within this article, the author provides an example of a “one dollar stock that moved five cents on average over the last 20 days”. My charting package has a facility to implement the ATR, but displays this in the form of a graph for the last 20 days instead of producing a figure. Therefore, how would I obtain the average figure of “five cents” as per the example? Would it simply be a case of adding the highest Average True Range figure to the lowest Average True Range for that period from the graph and dividing this by two?

If anyone has any knowledge of this, or uses this system, your advice would be much appreciated.

Regards.

#### Hotch

##### Experienced member
1,410 256
Adding the highest and lowest ATR won't normally give you the same figure. Would like a bit more info on what the problem is really, can't you just add em all up and divide by 20?

#### dpr

##### Newbie
3 0
Adding the highest and lowest ATR won't normally give you the same figure. Would like a bit more info on what the problem is really, can't you just add em all up and divide by 20?
I hear what you're saying; it's just that would take a long time to set up for each trade. I was hoping there was an easier way, or advice from someone who uses a similar stop loss system.

#### Hotch

##### Experienced member
1,410 256
Could get it programmed how you like, someone could probably do it for you fairly cheaply, should be quite simple to do it yourself depending on what charting package you are using.

Alternatively, you might be able to find a free charting package that does what you're after, just need to have 2 windows which could be annoying.

Sorry I can't be of much help

##### Member
91 0
I hear what you're saying; it's just that would take a long time to set up for each trade. I was hoping there was an easier way, or advice from someone who uses a similar stop loss system.
You could already have an indicator in your charting package, but with a different name. In Amibroker it's called a "chandelier exit", and in Quotetracker it's a "volatility stop". It may be worth checking the help files

#### JohnW

##### Newbie
4 0
I use ATR for setting stop losses on my US trading and am searching for a source for this figure in the UK. I have been using ShareScope--which provides a chart which can be read easily. However, I've just cancelled my ShareScope subscription (£300/yr) and am looking for a new source. What package are you using?

#### PualoP

402 34

##### Experienced member
1,898 97
It sounds like the chart is the daily ATR - and 20 days is the parameter used for the number of days taken into account.

So the current 20 day ATR is the last data point in the chart, surely? In this case, there would be dates or time along the x axis, and the ATR on the y axis.

As for how to apply it, there should be an optimum level for it. If you build a chart of returns from the system against multiples of ATR used for the stop (e.g. 0.75 to 4.5) you should see a smooth hill shaped curve. If your curve is all spikey, you don't have enough data.

251 5

#### SandyW

##### Well-known member
356 6
For a Stop Loss use the Supertrend Indicator

................If anyone has any knowledge of this, or uses this system, your advice would be much appreciated.........
The Supertrend Indicator is excellent for placing your stop loss. It uses ATR. You need to set the ATR multiplier to suit the instrument and timeframe you are using. It can also be used for a Stop and Reverse strategy: like Parabolic SAR, but much much better, as it trails the stop much closer to the price.