Chandelier Exit: trailing stops for protecting strong trends
The Chandelier Exit hangs below the recent high by a volatility-adjusted distance, so your exit rises as a trend makes new highs, locking in profit while letting winners run.
Key takeaways
- It trails below the highest high of a lookback window by a multiple of ATR.
- The level ratchets up with new highs and never moves down, by design.
- Best in trending markets; it can sit too far away or whipsaw in choppy ones.
- Using ATR makes the trailing distance adapt to the stock’s current volatility.
The core idea
A Chandelier Exit “hangs” from the recent high like a chandelier hangs from a ceiling. It takes the highest high over a lookback window, 22 days is a common choice, and places the exit a volatility-adjusted distance below it. As the stock prints new highs, that ceiling rises and drags the exit up with it. The defining rule is that it only ever moves up: a pullback does not loosen the level.
Why it ratchets one way
Allowing a trailing stop to move down would defeat its purpose, you would simply keep giving the trade “a little more room” all the way down. By locking the exit so it can rise but never fall, the Chandelier Exit banks more of the gain every time the stock makes a new high, then holds that protection if the stock turns. It is the mechanism that lets a winner run while still protecting profit already earned.
How volatility sets the distance
The gap between the recent high and the exit is a multiple of ATR, often around 3×. Because ATR reflects the stock’s recent daily range, the trailing distance is wide when the stock is volatile and tighter when it calms down. A flat “trail by 10%” ignores this; the ATR version adapts so the exit is not constantly tripped in a jumpy name or left far too loose in a quiet one.
Best-fit market conditions
The Chandelier Exit shines when a stock is clearly trending: it rides the move, lifting protection as new highs arrive, and only fires when the trend genuinely breaks. In sideways or choppy markets it is less comfortable, it can sit far below price doing little, or get whipsawed after a sharp spike and pullback. Matching it to a trending name is most of the battle.
The Chandelier Exit in PnLock
PnLock’s Adaptive Protector model is a Chandelier-style exit: 3× ATR below the 22-day high, trailing up with the trend and never down. Because PnLock computes it alongside fixed-percentage, swing-low, and moving-average models for the same position, you can see exactly when the trailing exit gives more (or less) room than the alternatives before choosing one.
Common questions
How is a Chandelier Exit different from a normal ATR stop?
A standard ATR stop is usually measured from the current price; a Chandelier Exit is measured from the recent high and is explicitly a trailing, one-directional stop. The Chandelier version is built to ride trends and lock in gains as new highs print.
What lookback and multiple should I use?
A 22-day high with a 3× ATR distance is a widely used default and the one PnLock’s Adaptive Protector uses. Shorter lookbacks or smaller multiples react faster but whipsaw more; longer or wider settings are more patient but give back more.
Does it work on falling stocks?
It is designed for protecting gains in uptrends. On a stock that is not trending up, there may be no sensible level below price, in which case the model simply reports no level rather than forcing a bad one.