ATR Stops calculates stop losses based on the Average True Range (ATR) of a stock. These are volatility-based stop losses.  It also computes daily True Range measurements.  It doesn't require any advanced math on the part of the user.  You only have to enter the stock's price data and the numbers 1, 2, or 3, to tell ATR Stops how to compute the stop loss.  Stop losses can be computed relative to the high, low, or closing price.  

The "True Range" tends to reflect the commitment or enthusiasm of traders.  For example, if traders are willing to keep bidding up or selling down a stock throughout the day, then ranges will tend to be large or increasing.  Conversely, if there is a lack of interest, ranges will tend to be small or decreasing.  

The Average True Range (ATR) is the average of the True Range over a given period.  It is a measure of volatility first introduced by J. Welles Wilder in his book, New Concepts in Technical Trading Systems.  Wilder recommended a 14-day average of the True Range.  According to Wilder, large ATR values tend to occur at market bottoms after a panic sell-off (volatility is high).  Small Average True Range values tend to occur when volatility is low.  An example would be during times of prolonged sideways movement (as when a market it topping out or undergoing consolidation)

ATR Stops will track up to 15 stocks (It is not only for stocks.  It can be used for any investment that has data for the date, open, high, low, and close).  Positions are arranged vertically, with 100 rows dedicated to each of the 15 positions.  This provides room for about 5 months of data for each position.  If the user wants to track a stock longer than 5 month, he simply moves the last 20 days worth of data from the bottom to the top, deletes the rest, and continues from there.  Thus, a stock can be tracked for years if desired.  There is a heading above every position that is similar to the blue heading illustrated below (rows 3 through 6), but without the yellow "Enter Date" cell.    

 

The symbol for the first stock is entered in cell B-4.  The "XPQ" entries in Rows 1 and 2 were entered for this illustration, and they show where the other 14 symbols would be if symbols were entered in the data fields for each stock being tracked.  The user does not enter the symbols at the location shown in the above illustration.  Rather, each symbol is created automatically.  For example, the second position begins at Row 110, and the symbol for that position is entered in cell B-111.  If we were to enter the symbol "ABC" in that cell, it would also automatically appear in cell C-1 (to remind you where that particular stock is located). 

Note the layout of rows 4 and 5 for columns A through I.  Every position in the spreadsheet has a similar heading, enabling a unique combination of settings for each stock.  The last word in row 6 is "Stop."  For all positions except the first one, that word is a link that takes the user back to the "home" position at cell A-1.  Cell D-4 is where a person can enter a "Multiplier."  For example, if a person wants computations to be based on twice the Computed True Range, he or she would enter 2 in cell D-4.  It is also possible to enter decimals.  For example, if a person wants calculations to be based on 1.25 times the computed True Range, he or she could enter 1.25 in cell D-4.  

Cell F-4 is where you can indicate the number of periods you want to use to calculate an Average ATR.  You can enter 5, 10, 14, or 20.  These are the time frames most often recommended for the ATR.  When you combine these four options with the range of possible values that can be placed in cell D-4, it should be obvious that the variations in sensitivity available to a user are infinite.

ATR Stops incorporates tremendous flexibility in its design.  For example, person who is "long" a stock would enter the number "1" in cell D5, or he would enter a "2" if he is short the stock.  A person who buys a stock might want a stop loss to be computed relative to the latest high, low, or close of the stock.  He can instruct the program to subtract the ATR from the highest high reached by the stock since its purchase by entering the number "3" in cell B-5.  To subtract the ATR from the highest low reached by the stock since its purchase, a "1" would be entered in B-5, and so on.  ("1" means low, "2" means close, and "3" means high). Column "L" rows 10, 11, and 12 lists these options as a reminder to the user.  If the user is selling short, he would enter the number "2" in cell D-5.  Then the program would add the ATR to the lowest high, low, or close reached by the stock since its purchase. 

If the user does not want to see the red-letter alerts "Sell Alert!" and so on that appear in column H, he can enter the number "3" in cell D-5 to turn that function off.  The stop losses will still be generated but the red notices will not appear.

Column I shows the stop loss setting.  If a person is long, the stop loss will trail the stock up as the stock climbs.  If a computation is equal to or less than the previous calculation, the corresponding cell will be balnk.  New stop loss settings will appear only if they are higher than the previous stop loss setting.  This makes the output less confusing than if every computation were displayed.  The latest stop loss showing will be the highest stop loss since the first date of data.  The same thing is true for short positions, but in reverse.  That is, if you are short a position, the result of the latest calculation will show only if it is lower than the lowest stop loss before that calculation.

Sometimes a person will want to see the actual True Range calculations.  To do this, he would enter the number "1" in cell D-4 and the number "1" in cell F-5.  The entry "1" tells the program to display the True Range.  The number 1 is entered for the "Multiplier" so that the program will display the basic True Range.  If you want to see 1.5 times the True Range, you would enter 1.5 in cell D-4.  If you delete the entry in cell F-5, the data displayed in column "G" will vanish.

If you are calculating a stop loss for a long position, the stop loss calculated is always relative to the highest high, low, or close since the beginning of the data entered.  If you are calculating a stop loss for a short sale, it is always relative to the lowest high, low, or close since the beginning of the data entered.  For example, if you have entered 50 days worth of data for a long position, and you are computing your stop loss relative to the stock's highs, then the program will compute the stop loss relative to the highest high reached during the 50 days for which you have entered data.  The computed stop loss will not follow the stock up and down.  If the stop loss has not risen for 5 days, the last stop loss showing will be the one computed 6 days ago.  That way, you don't have to search through all the computed stop losses to find the highest one.  It will be the last one showing.  Every time a higher stop loss is calculated, it will be displayed.  The old stop loss will still show, but the last one showing will always be the latest and highest.  

ATR Stops employs thousands of equations to make calculations whenever data is changed, and many of these are dependent on the output of other equations.  All equations are recalculated even if a change modifies the output of only one equation.  Depending on the speed of your system, the recalculation can take about 2 minutes (possibly a little longer).  Instead of making the user wait for calculations to finish every time data is entered or changed in a cell, ATR Stops will not recalculate until the user presses the f-9 key.  Then, all calculations will be completed at the same time.  To save time and to work more efficiently, we recommend that users make all entries and changes for all positions before pressing the f-9 key.  Some computers require the user to press the "fn" key while pressing the f-9 key.  

ATR Stops will not function until the current date is entered in the yellow box of cell A-3.  Column L  rows 3, 5, 6. and 7 is where the user enters operational codes that Stock Disciplines will provide.  These codes access and control various funcions and computational modules within the program.  The program will not operate without them.  These codes are interdependent, so you could think of them as a single complex 60-digit code that controls various operations (Excel does not work with numbers longer than 15 digits).  Modifying a single digit in any of them can cause subtle changes for certain combinations of settings or shut the program down entirely.  In other words, do not tamper with the codes we provide, because altering them in any way could make the program unreliable.  That is, corruptions can occur in output that are not obvious (stop losses generated could be quite wrong relative to the volatility of the security being tracked).  In the illustration, the bogus code "999-999-999-999-999" is entered in each code location simply for illustration purposes.  When a person enters his codes, he does not enter the dashes.  They are inserted by the program after the number has been entered to make it easier for a person to compare the code with the original when checking for accuracy.  

The Lab

So you can get a “feel” for how various settings affect the stop loss, we have provided a "Lab" where you can experiment to find the settings that best suit you and your investment strategy.  We suggest that you spend a little time conducting experiments here before you use ATR Stops to track real positions.  Your tolerance for risk and your preferred investment time-horizon will have a big impact on the settings you use.  For example, if your goal is to capture most of a 1-month move, your stops will be much closer to the current stock price than if your goal is to capture most of a 6-month move.  The potentially much greater returns of shorter-term investing come at the cost of greater trading activity.  Longer-term investing will generally require less trading activity and allow more downside volatility (greater risk).  The trade-off in using this more “relaxed” approach is the likelihood of a smaller return.  We searched for stock charts to use in the "Lab" that have sufficient twists, turns, and trends to enable you to evaluate different combinations of settings.  The Lab begins on row 1608 of the spreadsheet.  We have provided five charts in the lab and arranged them vertically.  You can see more than 5 years of charted price action by scrolling down.

The stop is traced in red.  From any theoretical “buy” point, you trace the progress of the red line relative to the price action of the stock.  The stop will be triggered whenever the stock’s low price falls below the highest price reached by the red line since the theoretical buy point.  To avoid having a position sold because of an intra-day spike, some investors use “mental stops.”  They wait to see if the closing price is below the stop line because they believe that where a stock closes is more important than what it does during the day.  In the lab you can study how your settings influence end-of-day stops by simply noting whether the stock’s closing price on the day of a decline is below the highest point reached by the red line.

ATR Stops is based on and uses Microsoft's Excel 2003 (or later), so it works on any system that can upen and work with those spreadsheets.  You must be able to open and use an Excel spreadsheet (with macros) on your computer to be able to use ATR Stops.  To test your system, click on the following link.  It will take you to a page where you can download a small Excel spreadsheet with a macro (ATR Stops has a few macros).  If you can enter a number and cause the spreadsheet to recalculate, then you should have no trouble using ATR Stops on your system.  Go to the test page.          

The Cost

The use of of ATR Stops for a year costs much less than the price of a subscription to the average stock market newsletter.  The average market letter consists of 8 to 12 pages of opinion.  On January 22, 2001, Money reported on a survey it made of 61 market letters.  The average annual subscription price for these newsletters was $220.46.  We have not checked lately, but we are sure prices have gone up considerably since then.  ATR Stops also costs less than an adult ticket to Disneyland.  The price for using ATR Stops for 6 months is $75 (support included).  Better stop loss placements can easily translate into far more in profits and savings than the price of using ATR Stops.  Even one well-placed stop loss might save many times the cost for a year of use.  

Ordering and The License Agreement

Read the License Agreement for details before ordering.  To read the License Agreement, click on Agreement.   An order cannot be transmitted to us unless you acknowledge that you have read the License Agreement, and the only way an order will be accepted is if a person follows our required procedure.  The reason a different procedure is required for ordering ATR Stops than for ordering our other products is because ATR Stops is software that we e-mail to a person, while most of our other products consist of information that is available on this Web site by the use of a password. 

If you wish to place an order, send us an e-mail to let us know.  We will give you instructions on how to proceed.  You may e-mail us from the "Contact Us" page.  Our e-mail address is also on that page in case you want to e-mail us using your own e-mail program.  If you do, use the phrase "Special Order" for the subject line so your message will not be deleted as spam.
     

 Stock Disciplines has created two stop loss calculators.  The following are ways in which they are distinguished from each other.   

     Stops has a greater number of approaches (19 in all) to computing a stop loss than ATR Stops.  All the stops computed by ATR Stops are based on the True Range and Average True Range, measurements developed by J. Welles Wilder and used by him to compute stop losses.  With regard to True Range, Stops does use a minor variation of the standard True Range measurement in its formula derived from Cynthia Kase's approach.  That formula uses a standard deviation of its True Range measurement (and/or any multiple thereof) in computing a stop loss.  All the stop losses computed by ATR Stops are based on the Average True Range (and/or any multiple thereof).
     Stops has 10 pre-determined locations where data can be entered for 10 stocks.  ATR Stops has 15 pre-determined locations for tracking 15 stocks.
     Stops computes stop losses from the perspective of a person who has bought a security with the expectation that it will rise.  ATR Stops will compute stop losses from the perspective of a person who expects a security to rise, or from the perspective of a person who expects a security to decline.
     The Average True Range (ATR) has been used for many years and with great success by investors who want to use volatility based stop losses.  ATR Stops uses this approach but adds a huge amount of flexibility.  The user can customize the ATR calculations by using a multiplier.  It can also compute trailing stop losses relative to the lows, closes, or highs reached by the stock since its purchase or short-sale.  Stops has a greater range of approaches (some using averages and others using standard deviations).  It also computes stops relative to the lows, closes, or highs, reached by a stock since its purchase.  It includes the approach of Bulkowski and stops derived from the work of Cynthia Kase.  Each of the 10 positions in Stops includes a module for computing Fibonacci retracement levels.  Stops has a User's Guide to explain various ways of computing stop losses, the settings that apply, and how they modify output.  ATR Stops is a simpler tool that computes stop losses that are based only on True Range and Average True Range, and we condsider the description on this page of the Web site plus a single page we send to licensees to include all the needed instructions.
       

Click here to learn about our other tool for calculating volatility-based stop losses


Other Stop Loss Related Information On This Site

Stop Loss "Psych-Outs"                      Stop Losses and the 4-week Rule

Stop Losses and Probabilities              Stop Losses and Risk Control

Stop Loss Relation to Diversification    Stop Loss Long-Term

Stop Losses Getting Triggered              Stop Losses and "Normal Fluctuation"

Stop Loss Information                           Stop Loss Tool                       

    ^.

^.