Trading Indicator Toolbox – Chandelier Exits

The original Analysis Toolbox articles discussed the various market cycles including trends and continuations. This part of the The Trader’s Indicator Series focuses on the Trading Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. (for a free 2-week trial CLICK HERE)

Chandelier Exits (CE) was authored by Chuck LeBeau. CE identifies stop loss exit points for long or short positions. Optional entry points are also displayed. CE uses an Exponential Moving Average to determine the current trend; then the Average True Range times a user defined factor is either, depending upon the trend, added or subtracted from the highest high or lowest low.

Chandelier Exits

INTRODUCTION

Chandelier Exits (CE) set a trailing stop-loss based on the Average True Range. Once a trader enters either a long or short position, the trading indicator is set to long or short and produces a training stop-loss. This trading indicator is designed to keep a trader in the trend trades for as long as the trend extends, when the typical trader will exit the trend early and not take advantage of the full move.

The CE formula uses 3 variables in the calculation, the period high or low, the ATR of that same period, and a factor which is a multiplier:

CE long = 22-period High – ATR (22) x 3

CE short = 22-period Low + ATR (22) x 3

The 63-period exponential moving average is how CE defines the current trend; when prices are above (below), the current trend is up (down). MotiveWave uses the default setting of 22 UpTrend and DnTrend Periods; CE looks for the highest high or lowest low of the last 22-periods and if using the daily charts, the period will be 22 days which is the number of trading days in a month. As per the formula above, the CE long takes 3 times the ATR (22) and subtracts it from the 22-period High to calculate the stop-loss. The chart below shows a 4-hour gold chart with the stop-losses calculated for a long position.

trading indicator

As per the formula above, the CE short takes 3 times the ATR (22) and adds it to the 22-period High to calculate the stop-loss. The chart below shows a 4-hour gold chart with the stop-loss calculated for a short position.

trading indicator toolbox

USING THE TOOL

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Jody
Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.
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Jody

Jody

Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.

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