Joined Jan 2005
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Status: Keep Learning
|1,180 Posts
Interesting question.....Have you checked how the Turtles used to trade before? I mean have you ever had a look at their trading strategy, how they entered the markets they traded, how they decided upon their stop loss and their position size?
If you haven't, I urge you to do as they used ATR in a very innovative way, mainly to determine position sizing for different markets they traded so that markets with low volatility tend to allow them bigger position sizing and markets with high volatility tend to restrict their position sizing...
I know this might not be very related to your question, however, in fact it is....Your stop loss actually determines your risk and the Turtles used ATR to adjust their position sizing in order to contain the risk of each individual position...
On the other hand, I personally use ATR in a way similar to that to determine Stop Loss levels....
For example, I categorize ATR based on a condition of either low or high (Relative to it's MA)...
If ATR is low (That is low volatility), I will use 1 ATR below entry price as the stop loss...(Reverse for short trades of course)...
If ATR is high (That is high volatility), I will use 2 ATRs below entry price as the stop loss..(Reverse for short trades of course)...
I also use ATR to trail the stop loss in the direction of the trade as well...
