CHANDELIER STOP LEAVES YOU HANGING
The chandelier stop is a variation of a volatility stop and vice versa. It hangs the stop off the highest daily high price. The multiplier typically varies from 2 to 5, and the average true range covers up to about a month (21 trading days). In testing, I used a 3 multiplier and 21 days for the ATR.
For Boeing data in Table 3.3 (for convenience, I am using the same volatility reading of 2.33), the stop would be 70.13 – (3 × 2.33) or 63.14. That is a bit closer to the stock than the 62.64 volatility stop.
The next section tests the various stop types.
- A chandelier stop hangs off the high price.
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