Chandelier Exit (ATR Trailing Stop) Explained for New Traders

The Chandelier Exit is a volatility-based trailing stop that helps you stay with a trend while limiting downside. It uses the Average True Range (ATR) — a measure of typical price movement — to keep your stop a consistent distance from price. Because it trails only in the trade’s favor, it aims to lock in gains without guessing tops or bottoms.

What is the Chandelier Exit?

The Chandelier Exit sets a dynamic stop below price in uptrends and above price in downtrends. For a long trade, it references the highest high over a recent window (the “lookback”) and places the stop a volatility-based distance below that peak. The distance comes from ATR, which estimates how much a market typically moves per bar. If you need a refresher on ATR, see our guide at Average True Range (ATR) Simply Explained.

Key idea: the stop ratchets only in the profitable direction. For longs, it can move up as new highs form, but it does not move down during pullbacks. This helps avoid giving back entire trends while still allowing room for normal fluctuations.

How to set it up and read it

Common settings

• Lookback: Often 20–22 periods (roughly a month on daily charts). Shorter windows hug price more closely; longer windows give more room.
• ATR length: Commonly 14. Shorter ATR reacts faster to volatility changes; longer ATR is smoother.
• ATR multiple: Frequently 2.5–3 for swing trading; 1.5–2.5 for faster intraday charts. Larger multiples mean wider stops and fewer whipsaws.

Long vs. short logic

• Long trades: The stop trails below price, updating upward when new highs are made. A break below the line signals an exit.
• Short trades: The stop trails above price, updating downward when new lows are made. A break above the line signals an exit.
• Execution choice: Some traders exit on an intrabar break; others wait for bar close to reduce false signals. Pick one rule and apply it consistently.

Practical examples

Example 1 (swing long): A stock trends from 95 to 105. The 14-period ATR is about 1.20 and you choose a 3× multiple with a 22-bar lookback. The stop sits near 105 minus a volatility distance (roughly 101.40). If price pushes to 108, the stop lifts accordingly. If price pulls back hard to the stop, you exit with a portion of the trend captured.

Example 2 (intraday short): A futures contract breaks down. ATR on your 5-minute chart is 2.0 points with a 2× multiple. The stop trails above price and steps down as new lows form. In a choppy bounce, price tags the stop and closes above it — you’re out. Tight settings protected you quickly, but they also increased the chance of a whipsaw. Widening the multiple or lengthening the lookback could reduce noise at the cost of giving trades more room.

Takeaway: Choose settings that match your instrument and timeframe. Faster charts and noisy assets often need slightly wider parameters than quiet, trending ones.

Pros, cons, and practice tips

• Strengths: Adapts to volatility, keeps you in trends, and gives objective exits without prediction.
• Limitations: Can exit late after sharp reversals or gaps; may whipsaw in sideways markets if set too tight.

Practical tips

• Start with common defaults (22 lookback, 14 ATR, 3×) and tweak slowly.
• Decide upfront: intrabar break vs. bar-close confirmation for exits.
• Never widen the stop after entry; only trail in your favor.
• Size positions so the initial stop distance fits your risk per trade.
• Record outcomes across trending and range-bound periods; expect different performance by regime.

Want structured practice? Use a simulator to fast-forward through historical charts, test one setting at a time, and log results. ChartingPark offers accelerated historical chart practice with TradingView charts. Try the Chandelier Exit on your timeframe, refine your rules, and measure consistency at https://app.chartingpark.com.