How to use ATR to place stop? Is it logical to use ATR for stop placement?

ATR is one of the best tools to place SL. It can also be used to trail SL.

Main advantage of ATR over other SL is that during high volatility, ATR is high and hence stop loss is automatically wide thus preventing getting stopped out by noise. Thus ATR takes care of volatility as well.

For long position one can use high/low/close minus multiple of ATR. One can also use n-Period MovAvg (or any other similar indicator) minus multiple of ATR. Similarly for short positions one would add multiple of ATR.

For e.g yesterday Tatamotor’s low was 456.7 and 5 day ATR is 16.96. If one subtracts 1 ATR from low, it would be 439.74​ which can be used as SL.

One of the best authors on this subject is Charles (Chuck) LeBeau.

Checkout following links

http://tradingqna.com/3347/how-to-trail-the-stops-when-the-market-moves-vertically-up

http://tradingqna.com/3226/what-are-the-advantages-disadvantages-of-trailing-stop-loss

http://tradingqna.com/3084/why-do-we-need-to-set-stop-loss

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Ajay, you are the best :slight_smile:

Thank you N.