Chandelier Exit: The Ultimate Trailing Stop Indicator
The Logic of the Exit: What is Chandelier Exit?
Developed by Chuck LeBeau and later popularized by Dr. Alexander Elder, the Chandelier Exit is a technical indicator that uses the Average True Range (ATR) to set a trailing stop-loss. It is named after the 'Chandelier' because it 'hangs' from the highest high or 'stands' on the lowest low of a trending market.
Most traders lose money not because of their entries, but because of their exits. They either exit too early and miss the big move, or stay in too long and watch their profits evaporate. Chandelier Exit identifies the 'structural reversal' point where a trend has officially broken and it's time to take your profits.
The Formula: High/Low vs. ATR Multiplier
The Chandelier Exit uses two main inputs: 1) ATR Period (Usually 22). 2) ATR Multiplier (Usually 3.0).
- Long Position:
Highest High in 22 periods - (3.0 * ATR). The stop 'hangs' below the most recent peak. - Short Position:
Lowest Low in 22 periods + (3.0 * ATR). The stop 'stands' above the most recent trough.
Chandelier Risk Checklist
Primary Filter: ATR-based dynamic trailing stop
Bullish: Price is above the green Chandelier line
Bearish: Price is below the red Chandelier line
Risk: Never use an ATR multiplier below 2.0
Exit: Close trade instantly if price touches the line
EA Compatibility: Excellent for automated trailing stops
Strategy: Riding the Big Trend
The Signal Entry: While it is primarily an exit tool, the Chandelier Exit can also trigger entries. If the price breaks through the Chandelier line to the upside, it's a structural trend-following signal. However, its real value is in managing your risk once you are already in a winning position. Trailing Profit: As the price makes new highs, the Chandelier Exit moves up with it. It will never move down in a long trade (and never move up in a short trade). This ensures that you capture at least 70% of any major structural trend without being stopped out by random intraday volatility.
Warning: Tight Stops in a Ranging Market
The Chandelier Exit is not for a sideways market. When the price is consolidated, the ATR decreases and the stop becomes very tight. This leads to a 'Whipsaw' where you are stopped out unnecessarily. Only use Chandelier Exit when you have a confirmed trend on the H1 or H4 charts, verified by an indicator like the ADX (Trend Strength) or a 200-period Moving Average.