Chandelier Exit Indicator: Setting an ATR Trailing Stop From the Highest High

The chandelier exit indicator answers a question most swing traders fumble: you are already in a winning trade, so where exactly does the stop go now? Instead of a fixed percentage or a line you eyeballed on the chart, it hangs the stop from the highest high of the recent past, at a distance set by the stock’s own volatility. Like a chandelier hanging from the ceiling, hence the name.

It was developed by Charles Le Beau and later featured in Alexander Elder’s books, according to StockCharts’ ChartSchool reference on the Chandelier Exit. The idea is simple. Stay in the trend as long as it keeps going, and get out when a fall is bigger than normal noise can explain.

How the Chandelier Exit Indicator Is Calculated

There are only three ingredients: a period high (or low), the Average True Range, and a multiplier. The default setting on a daily chart is 22 periods with a multiplier of 3. Why 22? Because a month has roughly 22 trading days, so the indicator looks back about one month. The same 22 is used for the ATR calculation.

The two formulas, as StockCharts lays them out:

• Chandelier Exit (long) = 22-day highest high − (ATR(22) × 3)
• Chandelier Exit (short) = 22-day lowest low + (ATR(22) × 3)

So the long exit sits three ATRs below the highest high of the last 22 sessions. The short exit sits three ATRs above the lowest low. If you hold a stock, you watch the long line. If you are short, say through futures, you watch the short line.

A quick refresher on ATR

ATR is J. Welles Wilder’s volatility measure, introduced in his 1978 book New Concepts in Technical Trading Systems, as the ChartSchool ATR page explains. It starts from the true range of each session, which is the greatest of three numbers:

1. Today’s high minus today’s low
2. Today’s high minus yesterday’s close (absolute value)
3. Today’s low minus yesterday’s close (absolute value)

The second and third legs exist to capture gaps. That matters a lot on Dalal Street, where stocks routinely gap on results, block deals or overnight global cues. A plain high-minus-low range would miss all of that. ATR tells you how much a stock moves, not which way. If you want the full walk-through, we have a separate guide on the Average True Range indicator.

Wilder smooths the true range rather than taking a plain average. For the usual 14-period ATR, StockCharts gives the formula as: current ATR = [(prior ATR × 13) + current TR] / 14. With the chandelier’s 22-period setting, the same logic becomes [(prior ATR × 21) + current TR] / 22.

A Worked Example With Round Numbers

The numbers below are for illustration only. They describe a made-up stock, not any real company, so the arithmetic is easy to follow.

Say you bought a mid-cap stock at ₹1,450 after a breakout. Looking back over the last 22 sessions:

• Highest high in those 22 sessions: ₹1,480
• ATR(22): ₹28

Long chandelier exit = 1,480 − (28 × 3) = 1,480 − 84 = ₹1,396.

That is your stop on day one. Your risk is ₹54 a share (1,450 − 1,396).

Day two: a new high pulls the stop up

The next session the stock runs. Yesterday’s close was ₹1,478, today’s high is ₹1,510 and today’s low is ₹1,460. The true range is the biggest of:

• 1,510 − 1,460 = 50
• |1,510 − 1,478| = 32
• |1,460 − 1,478| = 18

So TR is ₹50. New ATR = [(28 × 21) + 50] / 22 = (588 + 50) / 22 = 638 / 22 = about ₹29.

The 22-day high is now ₹1,510. New exit = 1,510 − (29 × 3) = 1,510 − 87 = ₹1,423.

The stop climbed ₹27 in one day. Notice that ATR rose too, which slightly widened the gap between the high and the stop. The stop still moved up because the new high more than made up for it.

The chandelier exit does not care where you bought. It only cares where the stock has been and how violently it moves.

Day five: volatility jumps, and the line drops

Now a twist that catches people out. Say the high stays at ₹1,510 but a couple of wild sessions push ATR to ₹36. The exit becomes 1,510 − 108 = ₹1,402, about ₹21 lower than before.

Yes, the raw chandelier line can move down. StockCharts notes it rises and falls as the period high and ATR change. It also slips when an old high drops out of the 22-day window. Many traders handle this with a simple house rule: the stop only ever moves up. If the new reading is lower, they keep yesterday’s stop. That turns the indicator into a true one-way trailing stop, which is how most of us actually want to use it.

The short side

Flip it for a short trade. Suppose a stock’s lowest low over 22 sessions is ₹612 and ATR(22) is ₹19. Short chandelier exit = 612 + (19 × 3) = 612 + 57 = ₹669. A close above ₹669 is your cue to cover.

Sizing the Position Off the Chandelier Stop

A stop is only half the job. The other half is how many shares you buy, so a hit stop costs a known amount.

Take a ₹5,00,000 account and a rule of risking 1% per trade, or ₹5,000. In our example the distance from entry to stop was ₹54.

• Shares = 5,000 / 54 = 92.6, so round down to 92 shares
• Actual risk = 92 × 54 = ₹4,968
• Capital deployed = 92 × 1,450 = ₹1,33,400

Here is the quiet benefit. A jumpy stock will have a large ATR, so the stop sits further away and the share count shrinks on its own. A calm stock gets a tighter stop and a bigger position. Volatility sets the size, not your mood that morning.

Picking the Multiplier: 3 Is a Default, Not a Law

StockCharts is explicit that volatile stocks may need a higher multiplier to cut whipsaws, while dull stocks may need a lower one to stay sensitive. In its own downtrend example, a normal 22-period, 3x setting would have triggered stops just before the trend resumed. A multiplier of 5 held through.

Using our day-two numbers (high ₹1,510, ATR ₹29), here is how the choice plays out:

• Multiplier 2.5: 1,510 − 72.5 = ₹1,437.50
• Multiplier 3: 1,510 − 87 = ₹1,423
• Multiplier 4: 1,510 − 116 = ₹1,394

The gap between 2.5x and 4x is ₹43.50 a share. On a stock that swings ₹29 a day, that is the difference between getting shaken out by one bad session and riding through it.

Our rough way of thinking about it for Indian stocks:

• Large, steady names such as big private banks or FMCG majors often behave fine at 3, and some traders go a touch tighter.
• Small caps, PSU momentum names and anything news-driven usually need 3.5 to 5. Results days and block deals produce gaps a tight stop cannot survive.
• Index trades on Nifty or Bank Nifty futures are a separate case. Test the setting on past data rather than copying a stock setting.

Whatever you pick, decide it before entry. Changing the multiplier mid-trade so the stop is not hit is how a system quietly stops being a system.

Where the Chandelier Exit Fits in a Trading Plan

It is an exit tool. StockCharts makes the point plainly: it is good for stops, but you need chart analysis or a momentum oscillator to time entries. Its own examples pair it with StochRSI for pullback entries in an uptrend and with the Commodity Channel Index for timing in a downtrend.

A clean way to use it in practice:

1. Find the trend first. Price above its long-term average, a recent breakout, higher highs. The basics in our technical analysis guide for Indian stocks cover this.
2. Time the entry with whatever you trust, whether a pullback to support or an oscillator turning up from oversold.
3. Set the initial stop at the chandelier long line, and size the position off that distance.
4. Trail it daily after the close, moving up only.
5. Exit on a close below the line, not on an intraday poke, unless your plan says otherwise.

It can also work as a trend filter. StockCharts notes that a break above the long-side chandelier line signals strength, while a break below the short-side line signals weakness. Some traders simply refuse to buy a stock trading below its long chandelier line.

Trends often run further than we expect. The chandelier exit is built to keep you on board for that extra stretch, and to get you off when the ride turns rough.

Common Mistakes With the Chandelier Exit

Using it as an entry signal on its own. Price crossing above a chandelier line is not a buy call. Without trend context, you will catch plenty of false starts.

Ignoring gaps. A stop on a chart is not a guaranteed fill. If a stock closes at ₹1,430 with the exit at ₹1,423, then opens at ₹1,380 after bad results, you get out near ₹1,380, not ₹1,423. ATR accounts for past gaps; it cannot stop a fresh one. This is one reason to keep position size honest.

Letting the line fall. As we saw, the raw formula can drop when ATR expands or an old high rolls off. If you follow it down, your trailing stop is no longer trailing.

Using one setting for everything. A multiplier that suits a large private bank will whipsaw a small-cap defence stock to death.

Checking it intraday on a daily setting. A 22-day calculation is built from completed daily bars. Reacting to intraday dips below it mixes timeframes and usually means getting out on noise.

Chandelier Exit vs Other Trailing Stops

The chandelier is one of several volatility-aware ways to trail a stop. A fixed-percentage stop ignores volatility entirely, so it is too tight for wild stocks and too loose for calm ones. A moving-average stop lags and can sit far below price after a sharp run. The Parabolic SAR accelerates as the trend matures, which some traders like and others find too aggressive. If you want to compare approaches, our piece on the trailing stop-loss strategy walks through the main options side by side.

What sets the chandelier apart is the anchor. It hangs from the best price the trend has printed, not from your entry and not from the latest close. As long as the stock keeps making new highs, the stop follows. Once it stops making them, the line stalls and price has to come down to meet it.

Bottom Line

The chandelier exit gives you a rule-based stop that respects how much a stock normally moves. The default of 22 periods and 3 ATRs is a sensible start; adjust the multiplier for the stock’s temperament, ratchet it up only, and pair it with a proper entry method. It will not make a bad trade good. It will stop a good trade from turning into a bad one because you got nervous or greedy.

Disclaimer: This article is for educational purposes only and is not investment advice. The prices in the worked examples are hypothetical. Trading involves risk, including loss of capital. Please do your own research or consult a SEBI-registered investment adviser before making any trading decision.