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volatility adjusted stops

  • #1
  • First Post: Nov 13, 2009 12:50am Nov 13, 2009 12:50am
Hi,

Was wondering if someone could please explain how to calculate volatility adjusted stops? I have done a google search but could not find anything that shows how to calculate these start to finish. Any examples or links to websites with examples would be greatly appreciated.

I know its Friday afternoon but I have a lot to learn.
  • #2
  • Nov 13, 2009 2:43am Nov 13, 2009 2:43am
Just base your stops on ATR (Average True Range) indicator's value. Depending on your system you can set SL/TP to 0.5 * ATR(14) or 2 * ATR(14) or whatever you use in your strategy.
  • #3
  • Nov 13, 2009 6:51am Nov 13, 2009 6:51am
Thanks for the reply, are there platforms that will calculate these for you or does it have to be done manually before every trade?

Also I dont quite understand where you got the numbers 0.5 and 14 from in the following equation 0.5 * ATR(14)?
  • #4
  • Edited 2:18pm Nov 13, 2009 7:29am | Edited 2:18pm
Quoting madetrader
Thanks for the reply, are there platforms that will calculate these for you or does it have to be done manually before every trade?

Also I dont quite understand where you got the numbers 0.5 and 14 from in the following equation 0.5 * ATR(14)?
The number in the brackets is the period you want to use.

For example, on a Daily chart an ATR(14) is the Average True Range of the last 14 Daily bars. If you were looking at a 4-hr chart it would be the last 14 4-hr bars, and so on.

The 0.5 would be half of that ATR. So, on the EURUSD at the moment the ATR(14) on the Daily is showing 124 pips so you could set your stoploss at 62 pips.
  • #5
  • Nov 13, 2009 7:33am Nov 13, 2009 7:33am
Quoting madetrader
Thanks for the reply, are there platforms that will calculate these for you or does it have to be done manually before every trade?
Every platform has an ATR indicator. You can simply put that indicator on the chart and do your own math. TradeStation allows you to substitute the ATR formula in place of a number. Most platforms aren't that flexible but could be programmed to do so.

Welcome to Forex Factory.
  • #6
  • Nov 13, 2009 12:39pm Nov 13, 2009 12:39pm
Quoting madetrader
Thanks for the reply, are there platforms that will calculate these for you or does it have to be done manually before every trade?

Also I dont quite understand where you got the numbers 0.5 and 14 from in the following equation 0.5 * ATR(14)?
If you are programming an expert advisor with volatility-adjusted stops then you can use get ATR value during run-time in MT4 EAs. If you are looking to use volatility-adjusted stops manually - simply add the indicator on the chart (almost all brokers will have it) and use the current value of the indicator when you set your SL or TP.
  • #7
  • Last Post: Nov 14, 2009 8:50am Nov 14, 2009 8:50am
Quoting PeterFM
The number in the brackets is the period you want to use.

For example, on a Daily chart an ATR(14) is the Average True Range of the last 14 Daily bars. If you were looking at a 4-hr chart it would be the last 14 4-hr bars, and so on.

The 0.5 would be half of that ATR. So, on the EURUSD at the moment the ATR(14) on the Daily is showing 124 pips so you could set your stoploss at 62 pips.

All makes sense now cheers
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