The DevStop is the closest we can come to an ideal stop level in the real world, by accounting for volatility (which is directly proportional to risk), variance of volatility (how much risk changes from bar to bar) and volatility skew (the propensity for volatility to spike higher from time to time).
The DevStop evaluates average market range, as well as the distribution and variability of the range, identifying points where there is a high probability of the market move being non-random. Specifically the DevStop places exit points at 1, 2 and 3 standard deviations over the mean two-bar true range, corrected for skew. Therefore, we can take profit or cut losses at levels at which the probability of a trade remaining profitable is low, without taking more of a loss or cutting profits any sooner than necessary.
Interpretation: The stop consists of four exit points, a warning line and Dev 1, 2, and 3. Two closes against the Warning count as Dev 1. To speed up the crossover of the stop from long to short, simply change the moving averages to crossover more quickly, for example to 3 and 13. To decrease the amount of the stops, that is, to pull them in, reduce the standard deviation settings.
For further information, see Danger Signals in Trading Guidelines.
DevStop Parameters
•Display
•L Dev1: Number of bars used to calculate the standard deviation
•L Dev2 and Dev3: Number of bars in the moving averages used to default the indicator to long or short.
•V Dev2 and Dev3: Number of standard deviations used to calculate the Dev stops.
•Price: Prices used to calculate the indicator.