One of the most common questions I get in email, blog comments, and in my youtube channel is “When do I sell?”

Having run record price breakout for over a year now, as well as reading many other traders blogs, I have come to realize that most of us spend a disproportionate amount of time discussing entry strategies, and not enough time discussing exits.

It has been said that a reliable exit strategy will lead to better profits than most entry strategies. As you don’t have any profits until you sell, I firmly agree with this train of thought, and thus decided to create a tool that will help my blog readers exit trades profitably.

Get The Tool Here

The Chandelier Stop

The exit strategy that I discuss in the video above is called the Chandelier Stop. Developed by Charles Le Beau, the Chandelier Stop is a trailing exit strategy which utilizes Average True Range (ATR).

Developed by Welles Wilder, True Range is defined as the greatest of the following:

• The current High Less the current Low
• The absolute value of the current high less the previous close
• The absolute value of the current low less the previous close

Here is an image that illustrates TR:

Average True Range (ATR) then is a moving average of TR, typically a 14 period moving average.

The chandelier stop then is a system of trailing exits that “hangs” a stop some multiplier of ATR below the highest high of the trade for long positions, or above the lowest low of the trade for short positions.

Ask you can see, the chandelier stop moves and adjusts based on the price action (volatility, and highs), making it very reactive to market forces.

By adjusting the multiplier of ATR as you gain profits, you can tighten your trailing stops. This allows you to let profits run, while still protecting profits.

Get The Tool Here

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