A trader can use ATR to place a stop-loss on a relevant technical place. Placing your stop-loss at two or tree ATR reduces the chance of being unnecessarily stopped out due to normal "fluctuations".
In the stock charts you can add an ATR based stop to your charts by adding the Stop: Chandelier exit overlay indicator to your chart.
The following settings are available:
The indicator will always keep a 3 ATR distance from the high point since the entry. It will never drop, so when the stock declines, the stop stays at the same level. Note: in case of a short trade, the Stop (short): Chandelier exit variant should be used.
On the chart below a 3 ATR stop, starting 55 days ago with an initial value of 3.25 was plotted.
The ‘Chandelier exit’ is a so called anchored indicator. Anchored indicators have a parameter that indicates on which candle the indicator needs to anchored. For ease of use you can add these indicators on the chart itself by just pointing at the candle where you want to anchor it to. This can be done by: