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 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.
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.