The Chandelier Exit is one of the most effective trailing stop strategies ever developed. Created by legendary trader Chuck LeBeau, it hangs from the highest high of a trend like a chandelier hangs from a ceiling. This volatility-based exit keeps you in strong trends while getting you out when momentum fades.
What is the Chandelier Exit?
The Chandelier Exit is a trailing stop that uses Average True Range (ATR) to determine how far below the recent high to place your stop. It adapts to volatility, getting wider when the market is choppy and tighter when it is calm.
Chandelier Exit Formula (Long):
Exit = Highest High (n periods) - ATR(n) x Multiplier
Standard Settings: 22-period high, 22-period ATR, 3x multiplier
Why It Is Called the Chandelier Exit
Picture a chandelier hanging from the ceiling. The ceiling represents the highest price reached during the trend. The chandelier hangs down from that point, with its length determined by ATR. As price makes new highs, the ceiling rises and the chandelier rises with it. But the chandelier never rises on its own - it only moves up when the ceiling (highest high) moves up.
How to Calculate the Chandelier Exit
Step-by-Step Calculation
- Find the highest high of the last 22 periods
- Calculate the 22-period ATR
- Multiply ATR by 3 (the standard multiplier)
- Subtract this value from the highest high
Example Calculation
Stock in uptrend with current price at $108
- Highest high (22 periods): $110
- 22-period ATR: $2.50
- Multiplier: 3
- Chandelier Exit: $110 - ($2.50 x 3) = $102.50
Your trailing stop is at $102.50. If price drops to this level, you exit.
Chandelier Exit for Short Positions
For short trades, the formula is reversed:
Chandelier Exit (Short):
Exit = Lowest Low (n periods) + ATR(n) x Multiplier
The stop trails up from the lowest low, exiting you when price rises too far from its lows.
Choosing the Right Settings
Period Length
- Short-term (10 periods): More responsive, exits trends earlier
- Standard (22 periods): Balanced, good for swing trading
- Long-term (50 periods): Very patient, stays in major trends
ATR Multiplier
- 2x ATR: Tighter stops, more frequent exits, captures less of big moves
- 3x ATR: Standard, balances staying in trends vs. protection
- 4x ATR: Wider stops, stays in longer, gives back more on reversals
Multiplier Impact
Same stock with ATR of $2.50, highest high at $110:
- 2x ATR stop: $105 (tight)
- 3x ATR stop: $102.50 (standard)
- 4x ATR stop: $100 (wide)
The tighter stop protects more profit but may exit trending trades too early.
When to Use the Chandelier Exit
Ideal Conditions
- Strong trending markets: The Chandelier Exit shines in clear trends
- Breakout trades: Lets you ride the move after a breakout
- Momentum stocks: Captures extended moves in high-momentum names
- Position trading: Excellent for longer-term trend following
When to Avoid It
- Range-bound markets: Will get whipsawed in sideways action
- Mean reversion strategies: Not designed for counter-trend trades
- Scalping: Too slow for very short-term trades
Chandelier Exit vs. Other Trailing Stops
vs. Percentage Trailing Stop
Percentage stops use a fixed percentage, while the Chandelier Exit adapts to volatility. In volatile markets, the Chandelier gives more room. In calm markets, it tightens up.
vs. Moving Average Trailing Stop
Moving averages can lag significantly during fast moves. The Chandelier Exit responds more quickly because it is based on the actual highest high, not an average.
vs. Parabolic SAR
The Parabolic SAR accelerates over time, getting tighter as the trade ages. The Chandelier Exit maintains a consistent ATR-based distance, which some traders prefer for staying in trends longer.
Practical Trading Tips
Combining with Entry Signals
The Chandelier Exit is purely an exit strategy. Combine it with your preferred entry method:
- Enter on breakouts, exit with Chandelier
- Enter on pullbacks to support, exit with Chandelier
- Enter on moving average crossovers, exit with Chandelier
Using Multiple Timeframes
Calculate the Chandelier Exit on a higher timeframe for a wider perspective:
- Trade on the daily chart
- Use weekly Chandelier Exit for the stop
- This keeps you in major trends while filtering daily noise
Partial Exits
Consider taking partial profits at targets while using the Chandelier Exit on the remainder:
- Take 50% off at 2:1 risk/reward
- Trail the other 50% with Chandelier Exit
- This locks in profit while allowing unlimited upside
Track Your Chandelier Exit Performance
Pro Trader Dashboard analyzes how different exit strategies perform on your actual trades. See if the Chandelier Exit would improve your results compared to your current approach.
Common Chandelier Exit Mistakes
- Using in choppy markets: The Chandelier needs trends to work well
- Wrong multiplier: Too tight stops in volatile markets cause whipsaws
- Ignoring the signal: When the Chandelier Exit triggers, respect it
- Not adjusting for the asset: Different stocks may need different settings
- Combining with conflicting indicators: Keep your system simple
Backtesting Your Settings
Before using the Chandelier Exit in live trading:
- Backtest on your specific markets and timeframes
- Compare different period and multiplier combinations
- Look at both total return and maximum drawdown
- Test in different market conditions (trending and ranging)
- Paper trade for at least 20 trades before going live
Summary
The Chandelier Exit is a powerful trailing stop that hangs from the highest high using ATR to determine distance. It keeps you in strong trends while protecting profits when momentum fades. The standard settings of 22 periods and 3x ATR work well for most swing traders, but you should test and adjust based on your specific trading style and markets. When combined with solid entry criteria and proper position sizing, the Chandelier Exit can significantly improve your trend-following results.
Ready to learn more? Check out our guide on Parabolic SAR trailing stops or learn about ATR-based stop placement.