Stages Outlook of the Rally

[Billy]

Billy,

When you say the trailing stop will rise exponentially faster over time, why is that? I assume it has to do with contracting volatility but not sure how the math works to cause the stop to move this way.

Also, I'm trying to figure out how to use ATR in such a fashion that it can "target" drawdown percentages. In other words, if I'm not comfortable with the historical intra-trade drawdown of an instrument, is there a way to manipulate ATR to maximize return while keeping drawdowns to the stated percentage.

I confess I'm relatively new to the ATR concept.

Adam,

1) The trailing stop is a function of ATR% deducted from the highest closing price. The faster the ATR% decreases, the faster the trailing stop will get close to the trading price.

2) It is foolish to try to use ATR for targeting fixed drawdown percentages. If you can't stand more than X% drawdowns, just use a fixed X% percentage stop. But your performance will decrease drastically unless you sell often on targets. But even such a strategy with optimal targets will underperform significantly risk-adjusted returns from a trailing ATR% stop.

Billy