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Technical Indicators

Thu, Jun 5th, 2025
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The descriptions, formulas, and parameters shown below apply to both Interactive Charts and Snapshot Charts, unless noted. Please note that some of the parameters may be slightly different between the two versions of charts.
Studies noted with * are available only in Snapshot Charts and those noted with ^ are available only in Interactive Charts.
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Volatility Stop

Indicator Type: Overlay

Chart Type: Interactive Charts only

Most traders adjust their stops over time in the direction of the trend in order to lock in profits. Apart from moving averages, one of the most popular techniques is trailing stops using a multiple of Average True Range. There are several variations; Barchart uses a version of the original Volatility Stops, introduced by Welles Wilder in his 1978 book: New Concepts in Technical Trading Systems

Signals are used for exits:

  • Exit your long position (sell) when price crosses below the Volatility Stop.
  • Exit your short position (buy) when price crosses above the Volatility Stop.

While not conventional, they can also be used to signal entries — in conjunction with a trend filter.

Using Closing Price rather than highs in an up-trend (or lows in a down-trend) may reduce the volatility of the system and could produce better results but there are two apparent weaknesses:

  1. Stops may move lower during an up-trend if Average True Range widens; and
  2. SAR assumes that the trend has changed every time that your stop is hit. Most traders will find that there stops are regularly hit without the trend changing — price merely retraces through your stops and then resumes the up-trend, leaving you lagging behind.

Welles Wilder used 7-day Average True Range and a multiple of 3. We have set the default, however, to a smoother 20-day Average True Range but retain the multiple of 2.

Volatility Stop

Calculation

Welles Wilder's system uses Closing Price and incorporates a stop-and-reverse feature (as with his Parabolic SAR).

  1. Determine the initial trend direction
  2. Calculate the Significant Close ("SIC"): the highest close reached in an up-trend or the lowest close in a down-trend
  3. Calculate Average True Range ("ATR") for the selected period (7 days in this example)
  4. Multiply ATR by the Multiplier (3.0 in this example)
  5. The first stop is calculated in day 7 and plotted for day 8
  6. If an up-trend, the first stop is SIC - 3 * ATR, otherwise SIC + 3 * ATR for a down-trend
  7. Repeat each day until price closes below the stop (or above in a down-trend)
  8. Set SIC equal to the latest Close, reverse the trend and continue.

Parameters

  • Period (20) - the number of bars, or interval, used to calculate the true range.
  • Multiplier (2) - the multiplier applied to the true range.
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