The Welles Wilder ATR Stop Loss System
Notice: This software is not available at this time. This page has been taken off-line and search engines should not be displaying it in search results. However, we do offer a stop loss service based on the ATR. We [rovide a downloadable spreadsheet in which you define parameters and the ATR stop loss is calculated for thousands of stocks. Learn more at http://www.stockdisciplines.com/ATR-Stops
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. 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. Thus, 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). Wilder developed a special way of computing the ATR. Our algorithm calculates the Average True Range the same way J. Welles Wilder calculated it. Not all programs or services use his method, even though they claim to be calculating the ATR. For example, some programs use the simple or exponential moving average calculations commonly used in charting programs because they are simpler than Wilder's formulas, but that means the stop losses they calculate are not the same as Wilder would use. Our algorithm implements Wilder's formulas in calculating the Average True Range.
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 implement your stop loss strategy on real positions. 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. 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.
In the "LAb," the stop loss follows the stock as it rises and falls. 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. The tradeoff is that waiting for the close can result in a larger loss. 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 ATR Lab is not part of a subscription by default. It must be chosen as an option when ordering an ATR Stops subscription. A person does not have to subscribe to ATR Stops to order the use of the tool, but ordering the tool separately will cost more. The tool will work for 6 months. If you order it for a year or more, the tool will still stop working after each 6 month period and we will send a new copy that will work for the following 6 months. Better stop loss placements can easily translate into far more in profits and savings than the price of a subscription. Even one well-placed stop loss might save many times the price of a i-year subscription.
You must be able to open and use an Excel 2007 spreadsheet with macros (.xlsm files) on your computer to be able to use the ATR Lab. 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 (the ATR Lab has a few macros). If you can enter a number and cause the macro to work and the spreadsheet to recalculate and if your system can pass the macro test provided, then you should have no trouble using the ATR Lab on your system. Go to the test page.
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