An ATR Trailing Stop That Adapts When Volatility Declines

Summary

This indicator describes a trend-following exit rule based on the Average True Range (ATR). In an uptrend, it tracks the highest closing price and places a stop below it by a multiple of ATR; in a downtrend, it tracks the lowest close and places a stop above it. The stop is updated when ATR declines, allowing it to move closer to price, while rising ATR leaves the existing stop level in place. A close crossing the stop changes the trend state.

The indicator offers two reset behaviors after a crossover: one holds the stop line at its existing level, while the other resets it using the tracked high or low close. The example settings use a 14-period ATR, a multiplier of 2, and the resetting mode, but these are parameters rather than evidence of optimal choices. The document gives indicator logic, not trading results or guidance on entries, position sizing, or risk controls. It notes that the preferred mode depends on the instrument, timeframe, and trading style; performance would need to be assessed for each use case.

Key ideas

• The stop is anchored to the trend’s highest or lowest closing price and offset by a multiple of ATR.
• The stop adjusts toward price when ATR falls and holds its previous level when ATR rises.
• A close crossing the stop reverses the indicator’s trend state.
• Two crossover modes determine whether the line holds its level or resets to a tracked close.
• The document provides no performance testing, and parameter suitability depends on the instrument and timeframe.

Tags

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