Volatility Stop on Gold

What it shows

Small crosses ride along the candles. Teal-green ones under price mark an up trend, red ones above it a down trend, and each cross is the stop level for its candle.

How Pravex works it out

1. Distance = ATR over the length × the distance in ATRs. Until the ATR has enough candles, the raw true range stands in for it.
2. The code tracks the highest and the lowest Source since the last flip.
3. In an up trend the stop is the higher of the previous stop and (highest Source − distance), so it only rises. In a down trend it is the lower of the previous stop and (lowest Source + distance), so it only falls.
4. The trend is up while Source is at or above the stop. When the side flips, the highest and lowest restart at the current Source and the stop jumps to Source − distance (new up trend) or Source + distance (new down trend).
5. With made-up figures, an ATR of 5 and a distance of 2 ATRs put the stop 10 away. If the highest Source since the flip is 200, the up trend stop sits at 190 or higher.

Settings

Setting	Default	What changing it does
Length	20	The ATR length. A shorter length lets the distance follow recent candle size closely; a longer one gives a steadier distance.
Source	Close	The price that is compared with the stop and used for the highest and lowest values. On hl2 a wick that closes back inside the trend is less likely to flip it.
Distance in ATRs	2	How many ATRs the stop sits from the best price. A larger value keeps the stop further away, so flips are rarer and a trend is given more room.

How traders read it

While the crosses stay on one side and keep the same colour, the trend has not been broken by more than the allowed distance. The stop only moves in the trend’s direction, so it works as a trailing level.

A change of colour and side is the flip. Read it as the level where a position in the old direction would have been given up, and note where price sat when it happened.

The distance grows when candles get larger and shrinks when they get smaller, so the stop sits further from price after a volatile stretch.

When it misleads

In a sideways range price keeps closing through the stop and the trend flips back and forth, each flip a small loss of ground. After a sharp spike the stop is set from the new extreme, so a normal pullback can reach it quickly. Gold has no weekend candles, so the stop is carried across the gap from Friday to Monday unchanged, and a Monday gap can flip it at once.

Questions and answers

How far should a Volatility Stop sit from gold?

Pravex puts it 2 ATRs of 20 candles away. A smaller multiple keeps it closer, so ordinary pullbacks flip it more often. A larger one, such as 3, flips less and leaves room for the wider candles of the New York morning, the widest hours in our own gold measurements.

Why not just set a stop 2 ATRs from price?

It is built from the best Source since the last flip, and it can only move in the trend’s direction. A flat ATR offset from the current price would move both ways.

Why did the Volatility Stop flip?

Source closed on the wrong side of the stop. The crosses then change colour and the new stop is set one distance away from that Source.

Can the stop move against the trend?

No. In an up trend it takes the higher of the old stop and the new level, and in a down trend the lower. Only a flip resets it.

Related: Chande Kroll Stop, Median, Chop Zone, every indicator.