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Trading on Cryptocurrency Bitcoin/Etherium with Chandelier Indicators

The Chandelier Exit is a volatility based exit. It is based on average true range. The author, Chuck LeBeau explains: It lets “… profits run in the direction of a trend while still offering some protection against any reversal in trend.” According to the theory, traders should exit long positions at either the highest high since entry minus 3 ATRs, or at the highest close since entry minus 2.5 ATRs.

The exit stop is placed at a multiple of average true ranges from the highest high or highest close since the entry of the trade. Chandelier Exit will rise instantly whenever new highs are reached. As the highs get higher the stop moves up but it never moves downward. Another method, called the “YoYo Exit” works in a similar way to Chandelier Exit, except that the ATR stop works with price Close values rather than Highest Highs. Thus, since Close value constantly moves up an down, the YoYo exit also moves up and down.

The default settings for Chandelier exits are a 22-day period and a multiple of 3.0 times Average True Range.

Formula in an uptrend:

Formula in a downtrend:

 

Using the indicator in Forex trading

The manner in which a Chandelier Exit can be used to trade in the FX market is given below.

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Long position

  1. Wait for a candle to close above the Chandelier Exit.
  2. When the next candle opens, enter a long position in the currency pair.
  3. After taking the volatility of the currency pair into consideration, place the stop-loss order a few pips below the Chandelier Exit.
  4. Keep shifting the stop-loss up as the price makes new highs.
  5. When the trend reverses, there will be a forced exit from the market.

Short position

  1. Wait for a candle to close below the Chandelier Exit.
  2. When the next candle opens, take a short position in the currency pair.
  3. With due consideration to the volatility of the asset, place a stop-loss order a few pips above the Chandelier Exit.
  4. Keep shifting the stop-loss down as the price makes new lows.
  5. When the trend reverses, market will remove the stop and close the position.

The Chandelier Exit is mostly used to set a trailing stop-loss during a trend. Trends sometimes extend further than we anticipate and the Chandelier Exit can help traders ride the trend a little longer. Even though it is mostly used for stop-losses, the Chandelier Exit can also be used as a trend tool. A break above the Chandelier Exit (long) signals strength, while a break below the Chandelier Exit (short) signals weakness. Once a new trend begins, chartists can then use the corresponding Chandelier Exit to help define this trend.

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