THE CHANDELIER EXIT: We have often advocated the importance of good exits and this is one of our favorites. 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. As the highs get higher the stop moves up but it never moves downward. (For future reference please note that we almost always give our examples from the long side and if there are any difference on the short trades we will try to point them out.) Example of Chandelier Exit: Exit at the highest high since entry minus 3 ATRs on a stop. Or exit at the highest close since entry minus 2.5 ATRs on a stop. Application: We like the Chandelier Exit as one of our primary exits for trend following systems. (The name is derived from the fact that the exit is hung downward from the ceiling of a trade.) This exit is extremely effective at letting profits run in the direction of a trend while still offering some protection against any reversal in trend. In fact our research and that of our friend Dr. Van Tharp has shown that this exit is so effective that we can literally enter markets at random and if we use this exit the results over time are likely to be profitable. (If you don't believe us just test it yourself over a handful of markets.) In general the best values for the ATR in most markets ranges between 2.5 and 4.0.