Using Chandelier Exits

Ka_Pai

I noticed that Arthur Hill has started to show the Chandelier Exit indicator on some his charts. I'm interested in using Chandelier Exits to set stop losses. My question is, if the Chandelier Exit indicator is falling, should I reduce my stop loss? Or should I only ever increase the stop loss (for a long position) as the Chandelier Exit indicator rises and hence ignore falling readings?

Thank you.

Ka Pai

markd

Well, the general advice is, never lower your stop.

However, after looking at a few charts with the default version, I think there is a question whether to honor the stop on touch (intraday), or on close below the stop.

If you exit on touch, it seems that is often a very good entry and the stock continues on its way. (That suggests this is a popular indicator, and professionals know there will be sell stops waiting around the indicator level, so they can scoop up some bargain stock for the rest of the ride.)

If you exit after a close below the indicator level (end of day or next open), your exit is more often followed by a true change (or stall) of trend. This seems to happen when the stock has lost its momentum and ranged a little before falling.

But, I've only looked at few chart, so don't take my word for it.

It might be worthwhile, too, to see if it works better in larger or smaller time frames - that is, daily vs. weekly charts. I'm guessing if you want to ride a long trend, there might be fewer whipsaws on the weekly.

Ka_Pai

Thanks markd for your comments. All good observations.