Volatility Stop (VSTOP)

Please note that the VSTOP indicator is similar to the original "ATR Stop" indicator (still present in the overall indicator list), but it includes 2 additional features: a smoothing capability and the ability to consider the high and low of the bar (instead of the Close)

The Volatility Stop Indicator helps define the current trend. The indicator plots a red line above the price bars when a downward trend is detected, and a blue line below the bars when an upward trend is detected. These lines are commonly used as trailing stops. This indicator is commonly used as an exit tool rather than an entry technique. When the price crosses the VSTOP value, the trend reverses, and VSTOP moves to the other side of the price. The VSTOP calculation method can be found above.

Short to Long Reversal bar: CL > VSTOP AND CL.1 <= VSTOP

Long to Short Reversal bar: CL < VSTOP AND CL.1 >= VSTOP 

The Formula

  • When Up Trend Detected.... VSTOP = CL - MULT * TR
  • As Up Trend Continues.... VSTOP = MAX(VSTOP.1, MaxCL - MULT * TR)
  • When Down Trend Detected.... VSTOP = CL + MULT * TR
  • As Down Trend Continues.... VSTOP = MIN(VSTOP.1, MinCL + MULT * TR)

Where

  • CL = Closing Price
  • MULT = True Range Multiplier
  • TR = True Range
  • VSTOP.1 = Volatility Stop Value on Previous Bar
  • MaxCL = Maximum Closing Price since Up Trend Began
  • MinCL = Minimum Closing Price since Down Trend Began

Trend reverses between up and down when Closing Price crosses VSTOP.

Presentation

Volatility_Stop_ER

Above is a 1-minute of the Russell Mini Contract (@ER#, DTN IQFeed). The Volatility Stop Indicator is plotted overlaying the candlesticks. The blue line represents areas where an upward trend is detected. Red line represents areas where a downward trend is detected. The preferences seen below were used in this instance.

vstopPrefs

  • True Range Period: Period used when computing the True Range.

  • True Range Multiple: Multiplier for the True Range.

  • "Use High/low" check box: consider the High/low of the bar instead of the Close within the calculation formula (and reversal criteria)

  • Smoothing parameter (for the TR component): when checked, select a Moving Average type and lookback period

  • Long Color: Color, width, and style used to draw the long or upward trending line.

  • Short Color: Color, width, and style used to draw the short or downward trending line.

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