Chandelier Exit

It's called Chandelier because the stop 'hangs down' from the highest high like a chandelier hangs from a ceiling. As the ceiling (highest high) rises, the chandelier rises with it. The ATR multiplier determines how far down it hangs.

Start with the standard 3× ATR multiplier. This provides a good balance between giving enough room for normal volatility while protecting against real reversals. Adjust after gaining experience - tighter (2.5×) for stable stocks, wider (3.5×) for volatile stocks.

No, never. For long positions, the Chandelier only moves up when new highs are made. If the stock falls without making new highs, the Chandelier stays flat. This one-way ratchet effect is key to protecting profits.

Chandelier is primarily an EXIT system. Chuck LeBeau designed it for trailing stops and exit management. However, it can also be used as a trend filter for entries - price above chandelier indicates uptrend, below indicates downtrend.

Standard is 22 for both ATR period and lookback (representing about one trading month). This works well for swing trading. Use shorter periods (10-14) for active trading, longer periods (30+) for position trading.

For shorts, the Chandelier is calculated as: Lowest Low + (ATR × Multiplier). It hangs UP from the lowest low. Exit shorts when price closes ABOVE the chandelier. The stop trails DOWN as new lows are made.

Not necessarily. Testing shows shorter ATR (14) with longer lookback (22) often works better. This makes the stop responsive to recent volatility changes while trailing from more significant price extremes.

ATR includes gaps in its True Range calculation (using |High-PrevClose| and |Low-PrevClose|). This means after a gap, ATR typically increases, widening the chandelier to account for increased volatility. No special handling needed.

Yes. Use weekly chandelier for trend direction and daily chandelier for tactical exits. Only take long trades when above weekly chandelier, exit on daily chandelier break. Re-enter if daily recovers while weekly intact.

Position Size = Risk Amount / (Entry Price - Chandelier Level). Example: If risking $1,500, entry at $50, chandelier at $46, then Position = $1,500 / $4 = 375 shares. Wider chandelier = smaller position.

Calculate ATR percentile over 100+ periods. If current ATR > 80th percentile, use 4× multiplier. If 20-80th, use 3×. If < 20th, use 2.5×. This widens stops in high volatility (avoiding whipsaws) and tightens in low volatility (protecting more profit).

Chandelier level is ATR-based support. Sell put strikes at/below chandelier - if broken, trend changes anyway. Exit option positions when stock hits chandelier. Use chandelier width to determine DTE - wide = shorter DTE (expect fast moves).

Testing shows: 2× ATR ~28% whipsaws, 2.5× ~18%, 3× ~12%, 3.5× ~8%, 4× ~5%. Higher multipliers reduce whipsaws but give back more profit. 3× is generally optimal balance.

Track whipsaw rate over time. If whipsaws increase despite stable market conditions, system may need recalibration. Also track profit protection - if average loss from peak increases, consider tightening multiplier or reviewing market regime.

Analysis shows Chandelier typically protects 4-5% more profit from peak versus no trailing stop. Without chandelier: ~8.5% average loss from peak. With chandelier: ~4.2% average loss from peak.