An ATR-Based Trailing Stop That Ratchets with the Trend

Summary

The document describes a trailing stop built from the Average True Range (ATR). It places a candidate stop a multiple of ATR below the closing price during an uptrend and above it during a downtrend. The example uses a 14-period ATR multiplied by 3.5, while presenting the period as adjustable.

When price crosses the current stop, the method switches sides and resets the stop using the current ATR distance. While price remains above the stop, the stop may rise but not fall; below the stop, it may fall but not rise. This ratcheting rule keeps the stop from moving against the direction of the current trend. The post compares the indicator conceptually with SuperTrend, but supplies no chart, backtest, performance statistics, or guidance on choosing parameters. As presented, it is an indicator calculation rather than a complete entry, exit, or position-sizing strategy.

Key ideas

• The stop distance is based on a multiple of ATR from the closing price.
• A price cross over or under the stop resets it to the opposite side of price.
• During an uptrend the stop can rise or remain fixed, while in a downtrend it can fall or remain fixed.
• The example uses a 14-period ATR and a multiplier of 3.5, without testing alternative settings.
• The post offers no evidence of trading performance or complete strategy rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.