The Advanced Trailing Stop

The Advanced Trailing Stop,
based on the Chandelier Exit developed by Chuck Le Beau, is volatility-based.
Dr. Van K. Tharp in his book Trade your way to Financial Freedom says "volatility stops are among the best stops you could select".
I've been using the volatility stop technique for a few years now.

Using the Metastock Developer's Kit, I developed a I developed a Metastock DLL because the Metastock Formula Language lacked a simple way of referencing prices from the entry day of the trade. If you just want to download the DLL, scroll to the bottom of this page.

Many traders set stops according to a fixed % movement. However, the % method needs to be adjusted according to the volatility of the security being traded. Using a volatility based stop means that your stop automatically takes account of the security's volatility.
For example, if the security has a high volatility, your stops will be a reasonable distance away from the price action (to give the security room to move in its normal intraday movements). If a security has a low volatility then the stop will be relatively closer to the price action. If the security's volatility changes whilst a trade is underway, the stops will adjust according to this volatility. The advantage to this type of stop is that it can be used in any market (blue chip stocks, speculative stocks, futures, index trading, mutual funds etc.)

The Advanced Trailing Stop has the following components:
• Initial Stop, expressed in terms to the entry day (eg. Closing price less 2 ATRs)
• Trailing Profit stop, calculated on each bar of the day after entry (eg. High less 3.5 ATRs)
Optionally, you can also incorporate the following types of stops:
• Breakeven stop - this is calculated on the entry day and is implemented when the stock passes a "transition point". (eg. Move my initial stop to a breakeven stop when the price closes 2 ATRs above my entry price). I believe this transition/breakeven stop was part of the original Turtles trading technique.
• Pyramid Points/Tightening Stops - the Trailing Profit Stop can be recalculated when the stock passes further transition points. I have defined two such points. (eg. When the stock moves more than 4 ATRs above my entry price, change to a trailing profit stop that is the High less 3 ATRs. If it reaches 6 ATRs above my entry price, change to a trailing profit stop that is the high less 2.5 ATRs). Chuck Le Beau talks about this tightening of the stops in his original newsletter.
If any of your stops are hit, the Stop Loss line will continue to be drawn across the screen. This is good for your psychologically if you can't get out of a trade. It'll keep telling you to get out! The line will not trail the price any further (it will be flat) just to re-emphasise that you should be out of the trade.

WHY HAVE I DEVELOPED THIS?
It's something I use in my own personal trading. Developing in Visual C++ with the Metastock Developer's Kit is something very few people have the skills to perform and I thought I'd give something back to the rest of the trading community. Perhaps you'll also consider subscribing to Premium Data if you want reliable end-of-day data.
I do not intend to ever commercialise this plugin - I'm happy for anybody and everybody to use it for free.

ATR MULTIPLES
By using logical values for the ATR multiples, you can define your trading style. For short-term trading, a trailing profit stop of 2 - 2.5 ATRs is useful. For medium-long term trading, a trailing profit stop of 3-4 ATRs is useful.

TRADE STAGES
The Advanced Stop system also allows you to plot a binary indicator that will indicate which "stage" of the trade you're on (very useful if you want to create an expert advisor).
The stages are:
0 - Not in a trade
1 - In trade, current stop being used is initial stop, trade is still underneath transition point to breakeven stop.
2 - In trade, trailing profit stop used
3 - In trade, price is past first pyramid point
4 - In trade, price is past second pyramid point
-1 - Trade stopped out on initial stop
-2 - Trade stopped out on trailing profit stop (or breakeven stop if this is being used)
-3 - Trade stopped out on first pyramid trailing profit stop
-4 - Trade stopped out on second pyramid trailing profit stop.
This trade stage system is also fantastic if you are developing trading systems with very specific defined entry points.

Check out the StageLong and StageShort functions.