FOREX Chandelier Exit
We often advocated the importance of good outputs and offer "Chandelier Exit" as one of the most effective. Place a stop within a few average true range (ATR) from the most highest point of the market or from the highest close of the bar, which were recorded from the opening position. Due to the fact that the maxima only move up, then we stop or move up or remains in place.
(In this and other examples, we assume by default that the position opens in the direction of the rising trend, while the cases with a declining trend will stipulate specifically). This exit has a name because the order to close a position is placed at a certain distance from the top of the market like a chandelier hanging from the ceiling.
Here are some examples of "exit chandeliers":
- Place the stop at 3 ATR from the highest point of the market with the opening position;
- Stop is placed at a distance of 2,5 ATR from the high bar close to the opening position.
"Chandelier Exit" is our priority output, which used in the development of systems that follow the trend. It allows hold a position almost until the end of a trend and is only triggered when there are serious conditions that the trend unfolds.
studies of our colleague and friend of Van Tharp has shown that Using this method of exit, you can open a position at random, and with some time still trade become profitable. You can check it at different markets.
range of best values ??of ATR, in our opinion, should be between 2,5 ATR 4 ATR.
Log on volatility.
Log on volatility is one of the most reliable triggers entry systems, following the trend. Our studies have shown that this input gives a higher percentage of profitable transactions, compared with a random occurrence.
purchase order should be set to a level that calculated as the sum of the close of the previous bar plus a percentage of average true range (ATR), or the opening of the current bar plus percentage of the average true range (ATR).
example, a rule for buying can be: buy now at a price of 0,7 * ATR + today's opening.
To calculate the ATR is necessary to take a sufficiently long period time - 20 days or more. If you take a shorter period, then the trigger input mechanism may be too sensitive because of short periods of low volatility.
This trigger input is one of the most reliable triggers due to the fact that its operation necessary to ensure that prices have a strong enough movement to trend. Of course, so we shall not enter the market at very low price, but the open position when the market is definitely will confirm its initial direction.
In this case, we sacrifice part of the profit potential for higher reliability entering the market.
With this method of entering as a starting point is usually taken to close the previous bar, but we recommend take the opening of the current bar. In our opinion, the movement of today's opening is better supported by the fact that short-term trend reversed in the direction of long-term trend. In developing trading system should be checked both options, although there are others, for example, using as benchmarks the top or bottom the previous bar.
Combine trigger volatility with "exit chandeliers "and you'll get the main components of the primitive trading system, following a trend that can be used as a useful benchmark to test your trading ideas.
Insert separately instead of the standard elements components that you want to check and compare the results. If test results exceed your ingredients test results for reference, so it is logical to use projected system component to your suggestion.
Thus, the reference system can serve as a guide to that you need to seek the design of their trade system, and possibly surpass it.