Execution · 7 min read

ATR trailing stops: letting winners run without giving it all back

An Average True Range trail moves with volatility, ratchets in your favour, and never moves backwards. How it works.

A fixed take-profit caps your upside at a number you guessed in advance. A trailing stop lets the market decide how far a trend goes, while locking in more of the move as it extends. The Average True Range (ATR) makes that trail adapt to the instrument’s actual volatility.

What ATR measures

True Range is the largest of: today’s high minus low, the gap from yesterday’s close to today’s high, or the gap from yesterday’s close to today’s low. ATR is the average of that value over a lookback — commonly 14 bars. It tells you how much the instrument normally moves.

Building the trail

Trail = max(previous trail, Close − k × ATR)

For a long position. k is a multiplier, often between 2 and 3.

The trail only ever moves up for a long (down for a short). It never loosens.
In quiet markets ATR shrinks and the trail tightens; in volatile markets it gives more room.
The position is closed when price closes through the trail.

The trade-off

A small multiplier locks in profit early but gets shaken out by noise. A large multiplier rides trends longer but gives back more at the turn. There is no free setting — only one that fits the instrument and your tolerance for giving back open profit.