Using The ATR Trailing Stop To Spot Reversals

One of my favorite tools for trading is the ATR trailing stop. The ATR trailing stop is simply a calculation, using the stock’s Average True Range. The Average True Range is the average stock price fluctuation within a certain time period.

I use it as a great visual for direction changes. I like to use this indicator in COMBINATION with other factors, including chart patterns, correlations etc., but this blog will just show some great examples of how it spotted reversals.

The first step in using the ATR trailing stop is adding it to your existing chart. In TOS, go to “ATR trailing stop” and add it to studies.

ATR trailing stop TOS

I like to use 9 and 2.9. Also, because of a “quirk” in TOS the buy and sell colors must be reversed.

ATR trailing stop reversed TOS

The next step is how to use the actual indicator. If day trading, I like to use a 15-minute chart to identify reversals, and then a 2 minute to initiate the actual trade.

Here is an example. First Solar Inc (FSLR) has been a great trading stock. As seen, it was a buy when it got OVER the 15-minute trailing stop. If I were long, I would have exited the minute it got UNDER the 15-minute ATR trailing stop. Once under, it was in a “short the rally” mode on a 2-minute chart until the 15-minute ATR trailing stop was broken to the upside.

ATR Trailing Stop FSLR

I have come to rely on the ATR trailing stop on multiple time frames, as it has worked so well for me over a long period.

Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.