ATR Volatility Crossovers with Percentage Trailing Stops

Summary

This strategy compares an ATR-based volatility series with its simple moving average to choose a market direction. It takes a short position when the smoothed ATR rises above its average and a long position when it falls below, with an optional setting to reverse those directions. The stated default periods are 10 for ATR and 26 for its average. Positions are managed with a fixed-percentage trailing stop that moves with price.

The document explains the rationale and potential limits, but presents no performance figures or detailed backtest results. Its claims that volatility changes indicate directional trends are not supported with evidence here; ATR measures range, not whether prices are moving up or down. The author notes that the single indicator can lag, sharp moves can breach stops, and trailing stops may not prevent profits from being given back. It suggests testing parameter combinations, adding other signals, adapting stop distance to volatility, and varying position size by market.

Key ideas

• The strategy compares ATR with its moving average to generate directional positions.
• ATR above its average signals short exposure, while ATR below its average signals long exposure, unless the direction is reversed.
• A percentage trailing stop adjusts with price while a position is open.
• The document warns that a single lagging indicator and sharp price moves can undermine the approach.

Tags

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