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TRAILING STOP ALGORITHM (VOLATILITY ADJUSTED FORMULA)
marko aimdal
posted Nov 13, 2012

One year ago I had this idea: what happens if I combine Average True Range (ATR) with an oscillator and two different set of parameters for ATR in we are in normal trading conditions or in Overbought/Oversold trading?

So first of all I calculate the Relative Strength Index (Wilder one with Connors settings). I obtain RSI2 value.

I then calculate the ATR20 for long term range effect and ATR2 for short term one.

Now if we have seen a contraction in range during last days with ATR2ATR20 we do ATR20-(ATR2-ATR20) to adapt to a volatility decreasing (it's highly probable)
This two numbers are the two possible trailing values.

We then adapt to RSI2 values.
If overbought or oversold with values >80 or <20 we calculate:
0,25*trailing value (to be prudent,, reverting is imminent)
If not:
0,5*trailing value (to give more room to the price)

So these are the oscillator weighted values for our trailing stop. I use this in a multyday mean reverting systems.

1 response
Dan Dunn
Nov 13, 2012

Hello Marko - That's a very interesting idea. Have you implemented it into Python? That would make a great example to post here. Or maybe someone else will want to take a swing.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.