Chandelier Exit: The ATR Trailing Stop From a Swing High

Key Takeaways

• The standard chandelier exit uses a 22-period lookback for both the high or low and ATR, with a 3.0 multiplier.
• For longs the stop sits at the period high minus 3 ATR; for shorts it sits at the period low plus 3 ATR.
• The stop only moves in the favorable direction, never back against the position.
• The most common mistake is using the same 3.0 multiplier across stocks with very different volatility regimes.

What It Is

A chandelier exit is a volatility-based trailing stop. It hangs a stop level a fixed number of ATRs below the highest high since entry (for longs) or above the lowest low (for shorts). LeBeau called it a chandelier because the stop hangs down from the price ceiling like a light fixture.

The default settings on most platforms are 22 periods and a multiplier of 3.0. Twenty-two roughly equals one trading month and ties the indicator to a monthly volatility frame. The 3.0 multiplier gives positions enough room to breathe through normal pullbacks without being tagged out.

The Intuition

Trends do not move in straight lines. A position that survives a few percent pullbacks often goes on to make the bulk of its gains in the second half of the move. A fixed-dollar stop ignores that reality and exits good trades on noise.

Tying stop distance to ATR adjusts the buffer to current market conditions. When volatility doubles, the chandelier widens and the trade gets more rope. When volatility falls, the chandelier tightens and locks in more of the open gain. The construction matches the actual size of recent ranges, including overnight gaps.

How It Works

The chandelier exit stop formulas are:

ChandelierExit_long_t  = max(high) over last 22 bars - 3 * ATR(22)_t
ChandelierExit_short_t = min(low)  over last 22 bars + 3 * ATR(22)_t

ATR is the Wilder-smoothed True Range. The output is plotted as a stepped line under price for long trades and above price for short trades. As price makes a new 22-day high, the stop ratchets up; if price falls without a new high, the stop holds at its prior level.

The rule is asymmetric and one-way. Stops only move in the direction of the trade. A close beyond the stop closes the position. Some implementations exit on a single bar close beyond the stop; others require two consecutive closes for confirmation.

Worked Example

Suppose a swing trader goes long a stock at 100 with a 22-day high of 102 and ATR(22) of 1.50. The initial chandelier stop sits at 102 minus 3 times 1.50 equals 97.50, so the trader is risking 2.50 on the trade.

Over the next two weeks the stock rallies to 110. The 22-day high resets to 110, and ATR rises to 2.00. The chandelier stop now sits at 110 minus 3 times 2.00 equals 104.00. The stop has moved up by 6.50 points, locking in 4.00 points of gain above entry.

A week later price pulls back to 105.00 but ATR contracts to 1.80, and the high stays at 110. The chandelier moves up to 110 minus 5.40 equals 104.60 because volatility has fallen and the buffer narrows. The position survives the pullback. If price closes at 104.50, the trade exits at the next bar with a logged loss buffer based on the closing price.

Common Mistakes

1. Using one multiplier for everything. A 3.0 multiplier on a low-volatility utility produces a wide stop relative to typical moves; on a momentum biotech the same multiplier may be too tight. LeBeau himself wrote that the multiplier should fit the asset.
2. Forgetting the stop only moves one way. Some implementations recompute the stop each bar and let it tick down when ATR falls. The classical rule keeps the stop at its maximum favorable level since entry.
3. Tightening to capture more gain. Cutting the multiplier from 3.0 to 1.5 after a position runs feels prudent but tends to take traders out before the trend finishes. The right time to retune is before the trade, not during it.
4. Using chandelier alone for entries. The indicator is an exit tool. Entries should come from a separate trend or breakout system, and the chandelier should be applied only after the position exists.
5. Mixing the lookback for high and ATR. The classic LeBeau formula uses the same 22 periods for the swing-high lookback and the ATR window. Mismatching them turns the indicator into something other than what backtests describe.

Frequently Asked Questions

What is the chandelier exit stop in simple terms? The chandelier exit stop is a trailing stop placed three Average True Ranges below the highest high of the last 22 days for a long trade. It ratchets up as new highs print and exits the trade if price closes back through it.

How does the chandelier exit stop affect investment decisions? Swing and trend traders use it to define exits without staring at the screen. By tying stop distance to volatility, position size can stay constant in dollar risk even as ATR changes across stocks and timeframes.

What is a real-world example of the chandelier exit stop? On a multi-month trend in a large-cap stock, a 22-day, 3 ATR chandelier typically survives normal weekly pullbacks and only exits on a structural break. Studies on US indices show meaningful capture of medium-term trends with the default settings.

How can investors use the chandelier exit stop effectively? Tune the multiplier to each asset's volatility, only move the stop in the favorable direction, and pair it with a separate entry system. Combine with a market regime filter to avoid trend-following in choppy conditions.

How is the chandelier exit different from a basic ATR trailing stop? A generic ATR trailing stop anchors to the running close or a moving average. The chandelier anchors specifically to the highest high (or lowest low) over a fixed window. That anchor gives the chandelier a sharper response to fresh trend extremes.

Sources

1. StockCharts ChartSchool. Chandelier Exit. https://chartschool.stockcharts.com/table-of-contents/technical-indicators-and-overlays/technical-overlays/chandelier-exit
2. Corporate Finance Institute. Chandelier Exit. https://corporatefinanceinstitute.com/resources/equities/chandelier-exit/
3. TradingView Support. Chandelier Exit. https://www.tradingview.com/support/solutions/43000773013-chandelier-exit/
4. IncredibleCharts. Chandelier Exits. https://www.incrediblecharts.com/indicators/chandelier_exits.php

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.