How to create a volatility-based Stop - Dynamic stop based on the Average True Range

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How to create a volatility-based Stop - Dynamic stop based on the Average True Range

Updated on 2011-05-07 05:10:56

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Usually the stop level of a trading system is set to a fixed value. You can however instruct QuantShare to update the stop level (trailing, profit or stop loss) depending on the market condition and the stock/security being traded.

To create a volatility-based stop, we are going to use the average true range indicator (ATR)

Steps:

- Select or create a trading system then open the trading system editor
- In Stop settings (at the bottom), enable "Stop Loss" then click on the fixed value near "at"
- In Indicator field, type: 10 * Atr(10) then click on "OK".
- Click on "(Percent)" then select "(Point)"
- You have just created a stop loss based on volatility

Notes:
- You can optimize the above stop formula, by typing: a * Atr(b) then updating the "a" and "b" variables in the optimization grid.
- It is possible to create a dynamic stop (based on a formula) for all types of stops (Stop Loss, Trailing Stop, Profit Stop and N-Bar Stop)
- You can create a dynamic stop for both Percent and Point stop modes.

Unlike what it is shown in the picture, we should use "Point" instead of "Percent".

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