calcutating Average True Range

Discussion in 'Strategy Development' started by tradingcards, Jul 20, 2007.

  1. I am reading Way of the Turtle and am interested in using 2x the Average True Range (ATR) as a stop from entry. How many days of average should you use? Should I use the average range over the past 10 days, 20 days, 30 days, etc???

    Please help.

    Thanks for any help
  2. There's no "written rule", but 20 days pretty much coincides with a typical 22 day month. That timeframe should reflect "normal" volatilty as well as encompassing most likely one trend or abnormal day.

    You might consider toning your trailing stop (and position size) down to 2.5 ATR's (half a week) until you master "it".
  3. Suppose you got hold of backtesting software that lets you simulate your trading system, operating on a portfolio of numerous markets. Suppose you varied the number of days used in the Averaging of (Average True Range). Suppose you ran backtests of your system with 59 different values of #days (like, from 2 days thru 60 days). Suppose you had those test results in front of you, right now.

    I suspect that you would like the results best, which average the ATR over 8 to 10 days. That's just my suspicion / prediction; maybe your system is different than mine, or maybe you like different things than I like. But I'll stick with the suspicion that when you have the backtest results in front of you, you'll decide you prefer an 8- to 10-day ATR.
  4. WHO are you "talking" to?

    IF it's toward the orginal poster, then disregard the following.

    Your suspicion is most correct. is different than yours, and I don't even know what your system is.

    Backtesting? All good and fine IF you have a statistically significant data sampling. Cover six sigma events and all environments. Probably measured in decades. The concept also suggests a mechanical system. I'm most descretionary. Hence couldn't simulate much.

    The turtle system the poster is trying to adhere to is best SUITED to universal instruments. Consistent mathematic computations (20 HHV or 55 HHV) With the intend of commencing pyramiding upon a half day's positive movement beyond entry. Liquid instruments with expirations/rollovers, substitutibility, helluva lot of leverage and myriad of players yet since pretty much void of the human element tugging puppet strings, trend persistent. but extended trendless and/or drawdown periods.

    In contrast, I trade small to micro caps. Much more random movement but still extended periods until if and when they trend. What I consider a base. No expirations and manageable leverage. Liquidity can be an issue if one owns several day's average volume. Partial fills (only at entry) a good sign. Little for sale. Definintely a human element who in the form of an ax: A. gaps at will. B. accumulates via gap or campaign. C. disposes on rallies. That's who I'm trading against (but attempting to trade WITH). Parallels to poker OR one on one with Michael Jordan. Hardly mechanical. Enter 1%/3N and move to 2%/2N once the intra-day low is above my intial basis (with appropriate filtering).

    N (ATR) being 20 days. More toward addressing size than stops since I will scratch volume permitting, in the blink of an eye. Any stops are mental. Descretionary.

    20 days suits my needs, and is also the time frame of Dennis and his turtles. Wilder, 14 days. I've never back-tested anything. But I do have a very comprehensive losses' journal spanning decades. "Tuition" leading to intuition.
  5. Good book eh.