Description:
An anchored volatility stop is an advanced risk management tool that allows traders to set stop levels based on specific reference points in the market. This technique provides greater precision and flexibility in managing risk compared to traditional volatility stops. The anchored volatility stop can be anchored manually to a specific candle or automatically to various technical levels or time frames. This functionality enhances the trader’s ability to tailor their risk management strategy to their specific trading preferences and market conditions.
Input Parameters:
- Anchored To: Select the criteria of anchoring the indicator. For example, you can anchor the indicator to time by selecting Year to Date. You can also anchor the indicator to Recent Gap or Highest volume or to Start of the month among many other options available.
- Window: The amount of candles a candle must dominate over in order to count as an appropriate anchor point". So in case, you do Window=5, then you'll be essentially anchoring to Williams Fractal points. If you do Window=20, then candle A will be recognized as the anchor point only in case no candle from 10 candles to the left and 10 candles to the right from A dominates over A.
- ATR Factor: Determines the multiplier of the Average True Range (ATR).
- ATR Length: Number of periods used in the calculation for Average True Range (ATR).
- Band Type: You can plot bands (a bundle of multiple levels) around this indicator and define the levels accordingly. There are three types of bands available to use i.e. - Percentage, Std. deviation (also known as volatility bands), and VbP Ribbon (gets thicker around the areas where more volume has been traded).
- Exit Reason: The part of the candle you want to exit - wick, body, or close.
Use Case:
- Risk Management: The anchored volatility stop allows traders to set stop levels based on specific reference points, providing a higher level of precision in risk management. By aligning stops with relevant price levels or technical indicators, traders can better adapt to market conditions and potentially improve their risk-reward ratios.
- Support/Resistance Levels: Traders have the flexibility to anchor the stop levels manually or automatically to various reference points, such as key support and resistance levels or technical patterns. This customization enables traders to adapt their risk management strategy to their preferred trading style and specific market dynamics.
- Improved Decision Making: By incorporating reference points into the stop levels, the anchored volatility stop helps traders make more informed trading decisions. It allows them to consider crucial price levels, market structure, or significant technical factors when determining their risk parameters, leading to potentially better timing and entry/exit points.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Dynamic Alerts
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.