Chandelier Exit.

The Chandelier Exit is a volatility based trailing stop exit developed by Chuck LeBeau's. It uses Average True Range(ATR) and it works quite well when our stock is trending and/or making new high. It lets our profits run in the direction of a trend while still offering some protection against any reversal in trend.

It is called Chandelier Exit because it hangs the stop from the highest peak reached by the trend just like a chandelier hangs from the tallest point in the room.

The application of Chandelier exit is quite simple. Exit at the highest high since entry minus 3 ATRs.

You can program it in Metastock with the formula as shown below.
{ User inputs }
Lookback:=Input("Lookback periods",10,50,20);
Coefficient:=Input("ATR coefficient",1,5,3);

HHV(HIGH ,Lookback ) - Coefficient*ATR(Lookback)

Let's look at an example.

PPB Daily Chart 7 Aug 09

PPB has been trending up and making new high. There is no previous resistance level to use as target for taking profit since PPB has made a new all-time high. This is where Chandelier Exit could be helpful. The latest calculated Chandelier Exit is RM14.23. We should exit if PPB decline to this.

Disclaimer:Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.