The Chandelier Stop is a trailing stop that is based on the volatility of the market. It has been successfully used and recommended by a number of traders, including Chuck LeBeau, for trend-following systems. The equations for the Chandelier Stop (CS) indicator recently incorporated into the FT Program are as follows:
If Long: CS=HH-Factor*EMA(Range, Length)
If Short: CS=LL+Factor*EMA(Range,Length)
Here, HH denotes the highest High since the indicator flipped from Short to Long, LL is the lowest Low since the indicator flipped from Long to Short, and EMA represents an exponential moving average. Values of Factor and Length are input by the user, with the default values set to 3 and 20, respectively. When used for long-term, trend-following systems, the best values for Factor in most markets range from 2.5 to 4.0, while the Length is usually set in the range from 10 to 20. You should conduct parametric studies on Factor and Length to find the best values of these parameters for the particular market or issue you are trading.