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# ATR Stops

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This older calculator is not available at this time.  For the new stop loss calculator, please   Click Here

Our ATR Stops calculator calculates stop losses using the formulas of J. Welles Wilder.  The stop losses are based on Wilder's concept of the True Range.  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 Wilder in his book, New Concepts in Technical Trading Systems.  Not all ATR stop loss calculators use the same equations Wilder used.  They often use a simple moving average or some other method of averaging, primarily because they are simpler.  In other words, they do not come up with the same figures that Wilder would have derived for his stop losses.  He created a very specific procedure for computing the True Range and for averaging it.  This tool uses Wilder's procedure.  However, since the program uses Wilder's recommended 14-day ATR, Wilders special averaging procedure kicks in after the first 14 days.  For the 14 days a simple average of the True Range is used.  To make sure that even the earliest computations are based on Wilder's equations, simply enter historical data before the desired starting date.  More detail on Wilder's procedure is at   ATR Stops

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 is topping out or undergoing consolidation).

The user can have ATR Stops calculate and display the True Range or a multiple of the True Range of a stock for each day. The tool uses these calculations to derive and display stop losses based on the Average True Range or on a multiple of the Average True Range as instructed by the user. The user can also Instruct ATR Stops to compute stop losses for either long or short positions.   Once it calculates the volatility figure and applies the user's choice of weighting to be applied, it subtracts the calculated amount from the high, low, or close for a long position or it adds it to the high, low, or close for a short position.  Whether it adds or subtracts the calculated amount depends on whether a "1" or "2" is entered in cell D-5.  Finally, the user can apply an infinite range of multipliers to the True Range used in ATR computations (decimals are accepted).

The user does not have to know how to calculate the True Range or Average True Range. The user gives Instructions to the tool by entering a "1", "2", or "3" in various cells. For example, entering "1", "2", or "3" in a cell can tell the program to compute an ATR-based stop loss relative to the highest high, close, or low price. Entering a "1" or "2" in another cell can tell the program to compute stop losses for a long or a short position, and so on.

If you are calculating a stop loss for a long position, you can have the stop loss calculated 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, you can make the calculations 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 and display the stop loss relative to the highest high reached during the 50 days for which you have entered data.  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 to make sure you are using 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 losses will still show, but the last one showing will always be the latest and highest (or the latest and lowest if computed as a short position).

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 1076 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 loss 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.  The charts in the lab were pre-selected by StockDisciplines.com and cannot be changed.

Why data input is not automated.