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How to create a volatility-based Stop - Dynamic stop based on the Average True Range

Updated on 2011-05-07 05:10:56

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Usually the stop level of a trading system is set to a fixed value. You can however instruct QuantShare to update the stop level (trailing, profit or stop loss) depending on the market condition and the stock/security being traded.

To create a volatility-based stop, we are going to use the average true range indicator (ATR)


- Select or create a trading system then open the trading system editor
- In Stop settings (at the bottom), enable "Stop Loss" then click on the fixed value near "at"
- In Indicator field, type: 10 * Atr(10) then click on "OK".
- Click on "(Percent)" then select "(Point)"
- You have just created a stop loss based on volatility

- You can optimize the above stop formula, by typing: a * Atr(b) then updating the "a" and "b" variables in the optimization grid.
- It is possible to create a dynamic stop (based on a formula) for all types of stops (Stop Loss, Trailing Stop, Profit Stop and N-Bar Stop)
- You can create a dynamic stop for both Percent and Point stop modes.

Unlike what it is shown in the picture, we should use "Point" instead of "Percent".

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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.