Effective ATR and SMA Trading Tactics Simplified

If SMA plot price close, 9 length, is less than ATR trailing stop, with an ATR period of 5, and an ATR factor of 3.5, with a trigger of first trade short, average type wilders, within 1 bars, with an offset of zero.

This is a trading strategy involving several technical indicators:

1. SMA (9): A 9-period Simple Moving Average of the closing prices.
2. ATR Trailing Stop: An Average True Range (ATR) trailing stop with a period of 5 and a factor of 3.5. The ATR measures market volatility, and the trailing stop adjusts dynamically based on this volatility.
3. First Trade Short: The strategy initiates a short position first.
4. Average Type Wilders: Uses Wilder’s Moving Average, a type of exponential moving average.
5. Within 1 Bars: The condition must be met within 1 bar.
6. Offset is Zero: No offset is applied to the indicators.

In essence, this strategy involves entering a short position when the 9-period SMA is less than the ATR trailing stop, with the ATR calculated using Wilder’s method. The trade is initiated quickly, within one bar, and there is no delay (offset) in the indicators.

What if the stock price is trading at $116.00?

If the stock price is trading at $116.00, the specific trading strategy described would look to see if the 9-period Simple Moving Average (SMA) of the closing prices is less than the ATR trailing stop calculated with the parameters provided.

Here’s what to consider:

1. SMA (9): Calculate the 9-period SMA based on the recent closing prices.
2. ATR Trailing Stop: Determine the ATR trailing stop with a period of 5 and a factor of 3.5.
3. Crossing Condition: Check if the 9-period SMA crosses below the ATR trailing stop. If it does, this would trigger a short trade.

If the SMA of the past 9 closing prices is less than the ATR trailing stop, this strategy would initiate a short position at $116.00, assuming all other conditions are met.

What price would this strategy go in effect?

To determine the exact price at which this strategy would go into effect, you’d need to calculate both the 9-period Simple Moving Average (SMA) and the ATR trailing stop with the given parameters.

Here’s a simplified outline of how to do it:

1. Calculate the 9-period SMA: Take the closing prices of the last 9 periods and find their average.
2. Calculate the ATR Trailing Stop:
   • Find the Average True Range (ATR) using the 5-period lookback.
   • Multiply the ATR by the factor of 3.5 to determine the trailing stop.
   • Adjust the trailing stop based on the direction of the trend.

You would monitor these indicators in real-time:

• If the 9-period SMA is less than the ATR trailing stop value, this strategy would trigger a short trade at that specific price.

At what price would this strategy trigger a short trade if the current price of the stock is $116.00?

To determine the price at which your strategy would trigger a short trade when the current stock price is $116.00, you need to calculate two main indicators: the 9-period Simple Moving Average (SMA) and the ATR trailing stop. Here’s a step-by-step approach to figure it out:

1. Calculate the 9-period SMA: This is the average of the closing prices of the last 9 periods.
2. Calculate the ATR Trailing Stop:
   • First, calculate the 5-period Average True Range (ATR).
   • Multiply the ATR by the factor of 3.5.
   • Adjust the ATR trailing stop based on the direction of the trend.
3. Check the Crossing Condition:
   • Compare the 9-period SMA with the ATR trailing stop.
   • If the 9-period SMA crosses below the ATR trailing stop, the strategy would trigger a short trade.

Given the current stock price of $116.00, you would need the most recent closing prices to calculate these indicators.

The last nine period closing prices are: 116.65, 110.85, 111.28, 101.36, 83.74, 82.49, 81.22, 79.76, 80.23

Let’s calculate the 9-period SMA and the ATR trailing stop step-by-step.

Step 1: Calculate the 9-period SMA

To calculate the 9-period SMA, we average the last 9 closing prices:

SMA=116.65+110.85+111.28+101.36+83.74+82.49+81.22+79.76+80.239\text{SMA} = \frac{116.65 + 110.85 + 111.28 + 101.36 + 83.74 + 82.49 + 81.22 + 79.76 + 80.23}{9}

SMA=847.589≈94.18\text{SMA} = \frac{847.58}{9} \approx 94.18

So, the 9-period SMA is approximately $94.18.

Step 2: Calculate the ATR Trailing Stop

Calculate the True Range (TR) for the last 5 periods:

1. From 101.36 to 110.85: TR = 110.85 – 101.36 = 9.49
2. From 83.74 to 111.28: TR = 111.28 – 83.74 = 27.54
3. From 82.49 to 83.74: TR = 83.74 – 82.49 = 1.25
4. From 81.22 to 82.49: TR = 82.49 – 81.22 = 1.27
5. From 79.76 to 80.23: TR = 80.23 – 79.76 = 0.47

Calculate the 5-period ATR:

ATR=9.49+27.54+1.25+1.27+0.475=40.025≈8.00\text{ATR} = \frac{9.49 + 27.54 + 1.25 + 1.27 + 0.47}{5} = \frac{40.02}{5} \approx 8.00

Calculate the ATR Trailing Stop:

ATR Factor = 3.5

ATR Trailing Stop=8.00×3.5=28.00\text{ATR Trailing Stop} = 8.00 \times 3.5 = 28.00

Step 3: Determine if the SMA Crosses Below the ATR Trailing Stop

• The 9-period SMA is approximately $94.18.
• The ATR Trailing Stop is $28.00 below the highest high over the last 5 periods. The highest high in the last 5 periods is $116.65, so:

Trailing Stop=116.65−28.00=88.65\text{Trailing Stop} = 116.65 – 28.00 = 88.65

Since the 9-period SMA ($94.18) is higher than the ATR trailing stop ($88.65), your short trade would not be triggered at this point.

Conclusion

Based on your provided data and the calculations:

• The short trade would not trigger if the current stock price is $116.00 and the 9-period SMA ($94.18) has not crossed below the ATR trailing stop ($88.65).

so if my profit in this stock so far is $5858.29 and i have 110 shares at $111.35. How much would i lost if the stock price fall to $88.65?

Sure! Let’s calculate the potential loss if the stock price falls to $88.65.

1. Current Investment Value:
   • You have 110 shares, and the current price is $111.35.
   • Current Value = 110 shares × $111.35 = $12,248.50
2. Future Investment Value if Price Falls:
   • If the price falls to $88.65:
   • Future Value = 110 shares × $88.65 = $9,751.50
3. Loss Calculation:
   • Loss = Current Value – Future Value
   • Loss = $12,248.50 – $9,751.50 = $2,497.00

So, if the stock price falls to $88.65, you would incur a loss of $2,497.00.

What if the ATR factor was 2.5, where will it stop?

Step 1: Calculate the New ATR Trailing Stop

We already calculated the ATR with a 5-period lookback:

• ATR: 8.00

Adjust the ATR Trailing Stop:

ATR Factor = 2.5

New ATR Trailing Stop=8.00×2.5=20.00\text{New ATR Trailing Stop} = 8.00 \times 2.5 = 20.00

Step 2: Determine the New Trailing Stop Level

• The highest high in the last 5 periods is still $116.65.
• The new trailing stop would be:

Trailing Stop=116.65−20.00=96.65\text{Trailing Stop} = 116.65 – 20.00 = 96.65

Conclusion

With an ATR factor of 2.5, the new trailing stop level would be $96.65. This means that if the stock price falls to $96.65, your ATR trailing stop would trigger.

Suppose i only wanted to loose $1000 which would i set my ATR factor?

To determine the appropriate ATR factor to limit your loss to $1,000, we need to establish the relationship between the ATR trailing stop and the potential loss. Here’s how to approach it:

Step 1: Calculate the Desired Trailing Stop Level

1. Current Investment Value:
   • Number of shares: 110
   • Current price per share: $111.35
2. Current Total Value: $$ \text{Current Value} = 110 \times 111.35 = 12,248.50 $$
3. Desired Loss: $1,000
4. Future Value After Desired Loss: $$ \text{Future Value} = 12,248.50 – 1,000 = 11,248.50 $$
5. Price per Share to Limit Loss to $1,000: $$ \text{Future Price} = \frac{11,248.50}{110} = 102.26 $$

So, to limit your loss to $1,000, your trailing stop should be set at approximately $102.26.

Step 2: Determine the ATR Factor

1. Calculate the ATR:
   • The ATR we previously calculated is 8.00.
2. Determine the Difference: $$ \text{Difference between Current Price and Trailing Stop} = 111.35 – 102.26 = 9.09 $$
3. Calculate the Required ATR Factor: $$ \text{ATR Factor} = \frac{9.09}{8.00} = 1.14 $$

Conclusion

To limit your loss to $1,000, you would set your ATR factor to approximately 1.14. This would position your trailing stop at about $102.26, thereby aligning with your desired loss limit.