A hanging trailing stop placed an ATR multiple (usually 3x) below the recent highest high. Lets profits run while keeping the exit disciplined. Designed by Chuck LeBeau.
The Chandelier Exit is a trailing-stop method devised by systems-trading researcher Chuck LeBeau in the 1990s. Its name tells you the whole idea. You hang the stop a fixed length below the ceiling, the recent highest high, the way a chandelier hangs from the top of a room. As the ceiling rises, the chandelier is lifted with it.
The problem LeBeau set out to solve is the eternal headache of trend following. Take profit too early and you miss most of the trend; too late and you give it all back at the reversal. His answer was clean. Anchor the exit line to the highest high, then leave a cushion below it sized by ATR, the market's own natural range of movement. As long as the trend extends, the line ratchets up with the ceiling and the profit cushion accumulates.
It belongs to the same family of ATR-based trailing stops as SuperTrend and Parabolic SAR, but one thing sets it apart decisively. The Chandelier's anchor is not HL2 (the midpoint of high and low) and not the prior stop value, but the highest high over the lookback period itself. So during an uptrend the stop maintains a constant distance from the ceiling. That choice defines the method's character.
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