CSA5Steps ATR Data Window

10 May 2020Indicators can be used to create a trailing stop-loss, and some are designed specifically for this function. When using an indicator-based trailing stop-loss, you have to manually move the stop-loss to reflect the information shown on the indicator. Many trailing stop-loss indicators are based on the Average True Range (ATR), which measures how much an asset typically moves over a given time frame.
If a forex pair typically moves seven pips every 10 minutes (the ATR would show this reading on the chart if using 10-minute price bars), the stop-loss could be trailed at a multiple of the ATR. For example, assume you buy a forex pair at 1.1520 and place an initial stop-loss at 1.1506; this is a risk of 14 pips. If the price moves in your favor, continue to trail the stop-loss 14 pips behind the highest price witnessed since entry. If the price rises to 1.1530, the stop-loss is moved up to 1.1516 (which is 1.1530 - 0.0014). Continue to do this until the price eventually hits the stop-loss and closes the trade.