Average True Range Usage

[cpatte7372]

Hello All,

I wonder if someone could give me some guidance on my use of the ATR for break-even analysis and profit taking. The problem I'm having at the moment is formulating some idea of where I should consider taking profits.

For example, lets say I want to bid on xyz stock at $20, I wouldn't know what I should expect from that stock. Now, I know we'll never know with certainity how high or low a stock will go but I would like to have some idea what I might expect from a stock after I placed a bid. I was thinking that if I knew what the ATR of the stock was over 14 days I could use that figure as I guide. I would just like someone to agree with me, (or disagree) with an explanation.

One more thing. I do understand the general concepts of break-even analysis, however, I want to understand how you should/could use raise a stop to break-even level. For example, if you raise the stop to break-even to soon you stand the chance of being taken out of a trade soon, raise it too late and you stand the chance of losing all the gains.

As always, thanks for you help.

Cheers

Carlton

[DuaneG]

Hi Carlton,

You may want to try searching for articles by Chuck LeBeau. He has written quite a few papers regarding ATR Ratchets and other techniques for profit taking. Hope this helps.

[cpatte7372]

Hi Duane,

I'll check him out.

Cheers mate..

Carlton

[fabrizio]

One more thing. I do understand the general concepts of break-even analysis, however, I want to understand how you should/could use raise a stop to break-even level. For example, if you raise the stop to break-even to soon you stand the chance of being taken out of a trade soon, raise it too late and you stand the chance of losing all the gains.

Carlton

None answered to your last question and I'll try to tell you nwhat I do.

Firts check on the AB posts and there is some interesting hints.
Second how to trail the stop loss.
One of My automated trade discrectional strategy is set in this way:
Security : ES
# of contract : 5
Firts target: 5 points(will Download 2 Contracts
Second Target: 10-15 points ( will download 2contracts)
Third Target : 20 -25points ( will close the whole position.) s

First StopLoss: 3.5 points ( download 3 contracts)
Second Stop loss 5 points ( will close the whole position.)

Trail #1
Trigger: 3.5 points
Frequency: 3.5 points
Offset: 2 points from the last bid /ask
This means that at the reach of 3.5 points of gain the stop is raised up of 3.5 MINUS 2 = 1.5 points.

Outcome:
a)you cover your BE and plus harvest some profits.
b)According to the impluse of the movement you can manually decide to bring down the stop JUST at the ENTRY level obtaining just a BE - Commissions.

a) in the case the price get back yo your stop raised IF IS JUST A SPIKE the machine will not conisder it. If is a .382 or .50 retrace you will be stopped ---> with Gain---> and ready to RE-ENTER the position with the same strat adding the 3 contracts of the firts stop maybe from a even lower point of your previous ENTRY.
b) You just came out in BE minus commission since your stop will be of whole the contracts .

TRAIL #2
Let's say that you reached your firts TGT and successfully downloaded the furst group of contracts. So your position is:
PROFIT= 2 contracts by 5 points
OUTSTANDINGS: 3 contracts at a level of circa 5 poinyts of profit

TRIGGER : 8.5 points
Frequency . 0.50 ( means stop will raise is move of 2 ticks every tick of increase in profit)
OFFSETT: 1.5- 2.0 points from the last bid ask

You tight your trail for the amount of money you have at stake begins to be interesting.

If you are stopped you can always reneter into the strat as told you before

and so on.......

I hope I have been clear and helpfull

[cpatte7372]

Hey fabrizio,

I have just seen this response. This is great mate. I will need to take some time studying it.

Cheers

P.S.

Please don't think I was being rude by not showing any gratitude, its just that I didn't get a email notification.