Chandelier Exit: ATR-Based Trailing Stops for Trend Following

Summary

The Chandelier Exit is a volatility-based trailing stop intended to help traders stay with an existing trend while limiting premature exits. It uses the Average True Range (ATR) to scale the distance between price and the stop. In an uptrend, the stop is placed below price; in a downtrend, it is placed above price.

The described default uses a 22-period lookback to find the highest high or lowest low and to calculate ATR. The document also mentions an extended version with a faster stop and separate lookback settings for ATR and price extremes, which can support shorter-term entries and exits alongside the main trend signal. ATR is derived from true range using the prior close and current high and low, then smoothed. No performance evidence or detailed entry rules are provided, so the indicator describes stop placement rather than a complete trading system.

Key ideas

• The Chandelier Exit sets a trailing stop whose distance is based on ATR.
• In an uptrend, the stop typically trails below price; in a downtrend, it sits above price.
• The default described uses a 22-period lookback for both price extremes and ATR.
• An extended version allows faster stops and separate lookback periods.
• The document explains the indicator but provides no performance results or complete trading rules.

Tags

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