The Chandelier Exit is a volatility based exit. It is based on average true range. See ATR indicator.
The author, Chuck LeBeau explains: It lets "... profits run in the direction of a trend while still offering some protection against any reversal in trend."
Chandelier exit rule
According to the theory, traders should exit long positions at either the highest high since entry minus 3 ATRs, or at the highest close since entry minus 2.5 ATRs.
How Chandelier Exit works
The exit stop is placed at a multiple of average true ranges from the highest high or highest close since the entry of the trade. Chandelier Exit will rise instantly whenever new highs are reached. As the highs get higher the stop moves up but it never moves downward. Another method,called the "YoYo Exit" works in a similar way to Chandelier Exit, except that the ATR stop works with price Close values rather than Highest Highs. Thus, since Close value constantly moves up an down, the YoYo exit also moves up and down.
Chandelier Exit formula
The default settings for Chandelier exits are a 22-day period and a multiple of 3.0 times Average True Range.
Formula in an uptrend:
Other ATR based indicators for MT4ChandelierStops_v1.mq4