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Table of Contents
- How To Use the ATR Indicator
- Video Lesson
- Step 1: Getting the ATR Indicators Value
- Step 2: Detecting Swing Lows & Highs
- Step 3: Adding An ATR Multiplier
- Step 4: Calculating The Trailing Stop Price
- Step 5: Drawing The Trailing Stop to Your Chart
- How to Fix Chart Scale
- Advanced Course
- Source Code
- OVERVIEW
How To Use the ATR Indicator
Almost every complex trading script on the planet uses the ATR indicators value to make its calculations in some way or another.
In todays Pine Script lesson were going to create an ATR trailing stop indicator to demonstrate how to use it in our custom scripts:
By using the inbuilt ATR indicator function, we can get the current ATR value and use it to inform our script be it through calculating stop loss and targets, adjusting to volatility, or anything else youd normally do with an ATR indicator in your strategies.
Each of these lessons build on previous lessons, so if there are any concepts or lines of code in this lesson that you dont understand, please go back through the related previous lessons [such as how to plot data to your chart and how to get basic user input].
If youre unfamiliar with the ATR or the many ways it can be used to enhance your strategies, then you will find this article extremely helpful.
And as always, the complete source code for this lesson is available at the end.
Video Lesson
If you prefer to learn in a visual/audio manner, then heres a video version of this lesson:
Step 1: Getting the ATR Indicators Value
The first step in working with the ATR in Pine Script is to simply retrieve the current ATR value.
With Pine Script being the amazing coding language that it is, we can achieve this using one very simple line of code:
atr = atr[atrLength]The default ATR indicators lookback length is 14 bars, so we can assign the atrLength to 14 by default.
As always, its best practice to allow your script users to adjust these settings to their preference, so were going to use the input function to assign the default variable:
atrLength = input[title="ATR Length", type=input.integer, defval=14, minval=1]Because were using a whole number as the ATR lookback length, we need to set the input type to integer.
And dont forget because were plotting this data directly to the chart instead of into its own indicator box, as I mentioned in previous lessons, we need to set overlay to true.
And in order to avoid errors when compiling the script, we need to have at least one plot[] function in the script. For now, well just leave this as plot[close] to draw the closing price to our chart and well change it later.
So your initial script should look something like this:
//@version=4 study["Lesson 7", overlay=true] // Get inputs atrLength = input[title="ATR Length", type=input.integer, defval=14, minval=1] // Calculate data atr = atr[atrLength] // Draw data to chart plot[close]Step 2: Detecting Swing Lows & Highs
In order to create a trailing stop we have two options.
We can either trail the ATR above or below the current closing price, or we can trail it above or below structure.
Trailing it above or below the closing price is easy we simply add or subtract the current ATR value from the current closing price. But if we want to use structure, then were going to need to detect the most recent swing highs and lows.
I demonstrated how to achieve this in Lesson 2, and finding the nearest high or low over a set lookback period is extremely simple. First we need to define how many bars we want to search back, and then we need to get the highest high and lowest low over that period.
So to begin with we need to create two more inputs a boolean input for determining which option we want to use [the closing price or structure set to true by default], and the lookback period for detecting structure:
useStructure = input[title="Use Structure?", type=input.bool, defval=true] lookback = input[title="How Far To Look Back For High/Lows:", type=input.integer, defval=7, minval=1]Now that we have the lookback value [7 bars by default], we can use it to determine how far to search back over historical price action for swing highs and lows.
We achieve this by using the inbuilt highest[] and lowest[] functions:
highestHigh = highest[high, lookback] lowestLow = lowest[low, lookback]After adding these few lines of code, your script should now look something like this:
//@version=4 study["Lesson 7", overlay=true] // Get inputs atrLength = input[title="ATR Length", type=input.integer, defval=14, minval=1] useStructure = input[title="Use Structure?", type=input.bool, defval=true] lookback = input[title="How Far To Look Back For High/Lows:", type=input.integer, defval=7, minval=1] // Calculate data atr = atr[atrLength] highestHigh = highest[high, lookback] lowestLow = lowest[low, lookback]We now have all the information we need to create a trailing stop except for one last thing: the ATR multiplier.
Step 3: Adding An ATR Multiplier
Most strategies and scripts will require an ATR multiplier in their calculations as not everyone uses a default 1 ATR value in their stop loss or target placement.
But before we can add a multiplier to our code, we need to create an ATR multiplier input that gets a floating point decimal number from the user, like so:
atrStopMultiplier = input[title="ATR Multiplier", type=input.float, defval=1.0, minval=0.1]The input type input.float means that our users can input any number with a decimal. So for example, if they want to use a half ATR multiplier to draw the ATR half of the standard distance away, they can type in 0.5.
By default well leave it at 1 [defval=1.0] and well set a minimum value of 0.1 [minval=0.1]. This minimum value is optional, but its a good opportunity to demonstrate the minval parameter.
Now we have everything we need to begin performing the actual trailing stop calculation, and your script should look something like this:
//@version=4 study["Lesson 7", overlay=true] // Get inputs atrLength = input[title="ATR Length", type=input.integer, defval=14, minval=1] useStructure = input[title="Use Structure?", type=input.bool, defval=true] lookback = input[title="How Far To Look Back For High/Lows", type=input.integer, defval=7, minval=1] atrStopMultiplier = input[title="ATR x ?", type=input.float, defval=1.0, minval=0.1] // Calculate data atr = atr[atrLength] highestHigh = highest[high, lookback] lowestLow = lowest[low, lookback] // Plot data to the chart plot[close]And we can now adjust these settings to whatever we desire in the options menu, which should look like this:
Step 4: Calculating The Trailing Stop Price
The final step of our ATR trailing stop calculation is to combine all of these variables weve created to determine the trailing stop price.
We can achieve this in two lines of code using the convenient conditional operator:
longStop = [useStructure ? lowestLow : close] - atr * atrStopMultiplier shortStop = [useStructure ? highestHigh : close] + atr * atrStopMultiplierThe conditional operator is represented by the question mark symbol [?] and the colon symbol [:]. The ? represents if, the : represents else or otherwise.
It can seem confusing if youre a beginner, but dont worry, its not that hard to understand and will just require some practice to become familiar with the concept.
The ? symbol in Pine Script represents a condensed if / else statement. If the boolean preceding the ? is true, then the first value is used. Otherwise, the second value is used. In this case, otherwise [or else] is represented by the colon symbol [:].
So in algebraic terms, the longStop line of code above is saying:
Assign longStops value to X, where X is set to the lowestLow if useStructure is true OR is set to the closing price if useStructure is false.
Either way, the result is a price value. We get the lowest low price, or the closing price.
If thats confusing, then another way of presenting this line of code is like this:
if useStructure longStop := lowestLow - atr * atrStopMultiplier else longStop := close - atr * atrStopMultiplierIn any case once we have that lowestLow or closing price value, we simply add to it or subtract it by the current ATR multiplied by the ATR multiplier value.
For a Long trailing stop we want it below price, so we subtract it for a Short trailing stop we want it above price, so we add to it.
After adding these two lines of code, your script should look like this:
//@version=4 study["Lesson 7", overlay=true] // Get inputs atrLength = input[title="ATR Length", type=input.integer, defval=14, minval=1] useStructure = input[title="Use Structure?", type=input.bool, defval=true] lookback = input[title="How Far To Look Back For High/Lows:", type=input.integer, defval=7, minval=1] atrStopMultiplier = input[title="ATR x ?", type=input.float, defval=1.0, minval=0.1] // Calculate data atr = atr[atrLength] longStop = [useStructure ? lowestLow : close] - atr * atrStopMultiplier shortStop = [useStructure ? highestHigh : close] + atr * atrStopMultiplier // Draw data to chart plot[close]Step 5: Drawing The Trailing Stop to Your Chart
The script is almost complete, but the final step is to draw these values to our actual chart.
This part is easy all we need to do is replace plot[close] with 2 new plots, like so:
plot[longStop] plot[shortStop]If you add those two lines of code to your chart, the script will now plot your trailing stop price to the chart for both Long positions and Short positions.
But what if we want to know the current ATR value without having 2 indicators on our chart [this indicator and the ATR indicator]?
We already have the ATR value, so we might as well plot this to our chart too. And what if you want to change the color of the Long trailing stop [below price] to green, and the Short trailing stop [above price] to red?
First of all, if you plot the ATR to your chart then on some instruments with a price range that is similar to the ATR value, it will actually show up on your price action chart as a random black line.
So if were going to draw the value to the chart, we must make it transparent:
plot[atr, color=color.blue, title="ATR", transp=100]And finally, to change the colors of our trailing stops, we just need to adjust our plot[] functions to look like this:
plot[longStop, color=color.green, title="Long Trailing Stop", transp=0] plot[shortStop, color=color.red, title="Short Trailing Stop", transp=0]Notice that Ive titled the plots using the title parameter. If you do this, it will allow you to adjust these values in the settings menu, which looks like this when you open your indicators options:
Congratulations! Now our script is finally complete, and you have your first trailing stop indicator script.
If you add it to your chart, it should look something like this:
How to Fix Chart Scale
If you add this script to your chart and your price data gets all squished and weird-looking, make sure youve set your price axis to Scale Price Chart Only, like this:
Advanced Course
If you want to take your Pine Script coding to the next level, then I think youll be interested in my Pine Script Mastery Course.
If you liked this free content then I promise that youll love my premium content where I am able to go into much greater detail and help answer students questions!