The Chande Kroll Stop is an indicator used for identifying potential stop-loss zones. It consists of two lines: a red line that shows stop losses for short positions and a green line for long positions. As an overlaid indicator, the lines move up and down depending on price action and volatility.
The idea of using a stop-loss is to minimize your risks during volatile periods and to lock in profits. Without using a stop-loss, you risk losing your entire position, which is why using a stop-loss in conjunction with other risk management strategies is an important part of trading.
How is the Chande Kroll Stop Calculated?
The Chande Kroll Stop is based on true ranges hence the widening and contracting bands.
To simplify the indicator, it is based on the following calculations:
- Most recent high minus most recent low
- Most recent high minus previous close
- Most revent low minus previous close
How to trade using the Chande Kroll Stop
Besides being used as a means for identifying stop-loss areas for both short and long positions, it can also be used as a trend-following indicator based on directional movement.
Some common signals generated by the Chande Kroll Stop is with the following. You can buy when prices moves below both lines, or buy when the price moves above the lines. You can also enter a trade when the lines cross over.
To summarize, the Chande Kroll Stop is one of many indicators available on Trading View that can help you set stop-losses and make entry and exit points as part of your trading strategy. Yet despite being a useful tool, the indicator should not be used in isolation. Additional signals and insights can be taken from the MACD, RSI, or Bollinger Bands to better understand the price action and to make more well-informed trades.