FOREX QUANT

January 9, 2008

ATR-derived Stop Loss Level

Filed under: Uncategorized — by TraderMade @ 10:22 am
Tags: , , , ,

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After reading my online buddy’s blog entry about MAE/MFE analysis, i thought it’d be worth posting this note about how we calculate stop loss level based on ATR (Average True Range).

Using a fix n pips distance for SL and/or TP is the simplest way a trader would do. But sometimes, the market would perform differently from time to time. Sometimes the market moves wildly with longer candle body, sometimes it moves very calmly with a very low volatility. A fix n pips SL/TP wouldn’t fit into the always changing market’s volatility behavior.

Moreover, we surely want to test a strategy in several different currency pairs. And because each pair would have different volatility behavior, using an ATR-derived SL/TP level would provide us with a system that can literally self-fit into any kind of volatility behavior.

These are some sample lines from our strategy. It calculates ATR first:

atr_SL = iATR(Symbol(), 0, prm_normalization_atr_period, 1) * prm_SL2atr_ratio;

and then this atr_SL value is used to calculate SL distances as follows:

stoploss = NormalizeDouble(Ask + atr_SL, Digits);

so the value of the SL distance would be based on ATR, not a fix n pips.

(*)

1 Comment »

  1. I came across this website and read your comment regarding the atr tp-s/l strategy idea. I have such ea for the mt4 platform since is the right approach to take as exactly as you have described it. It is called atr break out system and I have it written by my former programmer of which I retain the copyrights. It is never further distributed and solely in my posession for private trading purposes.
    If interested it can be negotiated to use out of my private domain within a non disclosure environment for the use of large investment pools. My private pool is well over Euro 10E6 thus bigger pools are needed to consider such proposal.

    Danny
    w y n s c h e n k [at] hotmail.com
    (remove the spaces, spam bot proof technique)

    Comment by Danny — July 17, 2008 @ 6:08 am |Reply


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