.
All prices are in U.S. Dollars

.

# ATR Stops

Click to enlarge image(s)

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.

Wilder recommended a 14-day average of the True Range.  If the user has entered sufficient data, the calculator will compute the 5-day, 10-day, 14-day or 20-day ATR.  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.

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 1608 of the spreadsheet, just below the 15th position. 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.

You must have Excel 2007 (or later) installed on your computer, and be able to open an Excel spreadsheet with macros in order to use ATR Stops﻿. If you have Excel 2007 or later installed on your computer, click on the following link. It will take you to a page where you can download a small exe (executable) file with a macro (ATR Stops has a few macros).  If you can enter a number and cause the macro to work and the spreadsheet to recalculate, then you should have no trouble using Stops on your system (unless you have a Linux or Apple system, and those may or may not work depending on configuration).  Do not try to open the file with Excel.  That will not work.  Simply click on the downloaded icon and it will open.  Notice: There are compatibility issues with versions of Excel that are older than Excel 2007.  Do not attempt to open ATR Stops or even to test your system if you have Excel 2003 or other older versions of Excel.  This is very important.  If you have an older version of Excel and you want more information on this, contact us.

The macros in ATR Stops are essential to the proper functioning of the tool, so they must be enabled (a simple setting choice in Excel).  You also must enable ATR Stops to connect to this Website.  When you open ATR Stops, make sure your spreadsheet program is closed.  To open the calculator, click on the ATR Stops icon, ATR Stops opens and makes use of the functionalities of your installed spreadsheet.  While ATR Stops is easy to use, there is a lot to it internally.  The procedure Wilder used is a little more complicated than using a simple moving average of a two day range, and that is why this tool is a little larger than it would be if it used something other than Wilder's procedures.  ATR Stops is configured to track a maximum of 15 stocks simultaneously.  Once ATR Stops is opened, data can be entered as quickly as for any simple Excel spreadsheet. It is configured so that it will not compute anything until you tell it to by pressing the f-9 key. Simply make all your entries for all stocks, press the f-9 key, and wait for ATR Stops to complete its computations. Because there are many thousands of equations (large numbers of which depend on the calculations of several other equations), it may take the program a few moments to finish its calculations.  We recommend this procedure because it would be tiresome if the program recalculated automatically every time a number is entered (and you had to wait for tens of thousands of calculations before proceeding).  That is why we suggest that users make all changes before pressing the f-9 key.