TL;DR. A percent trailing stop around a fast adaptive average (Chande's VIDYA, the support line). The stop ratchets with the trend and flips when the average crosses it. OTT is that stop drawn a couple of bars late; the trend is up while the support line is above OTT, and their crosses are the signals.
What it measures
- An adaptive average. The support line (VAR) moves fast when a 9-bar CMO shows strong momentum and slowly when momentum is weak.
- A percent stop around it. OTT sits a fixed percent of the average below it in an uptrend and above it in a downtrend.
- A flat zone. The same stop run on the highest high and the lowest low gives an upper and a lower line; between them the market has no clear side.
Formula
Inputs in AlgoLift
| Setting | Default | Range | Notes |
|---|---|---|---|
| Period | 2 | 1 to 500 | Base length of the VAR average. The published default. |
| Percent | 1.4 | 0.1 to 50 | Distance of the stop from VAR, in percent of VAR. |
| Delay | 2 | 0 to 10 | Bars OTT is drawn late. 0 gives the Moving Stop Loss. |
| High/Low Window | 10 | 1 to 500 | Bars in the highest high and lowest low the upper and lower lines track. |
| Source | Close | Close, Open, High, Low, HL2, HLC3, OHLC4 | Which value of each bar VAR averages. |
Outputs in AlgoLift
| Handle | Type | Plotted | Notes |
|---|---|---|---|
| OTT | Numeric | Always | The percent stop around the support line, drawn the delay's bars late. |
| Support Line | Numeric | Always | The VAR (VIDYA) average the stop is built around. |
| Upper (high) | Numeric | On select | The same stop on the highest high: a close above it reads as an uptrend. |
| Lower (low) | Numeric | On select | The same stop on the lowest low: a close below it reads as a downtrend. |
| Direction | Numeric | On select | 1 while the support line is above OTT, -1 while below; it holds when they are equal. |
| Signal | Numeric | Always | +1 when the support line crosses above OTT, -1 when it crosses below, 0 elsewhere. Drawn as markers on the chart. |
How to read it
- Support line above OTT: the trend is up. The gap between them shows how far the average has run from its stop.
- Support line crossing OTT: a signal. The delay makes OTT lag, so the cross confirms a turn the stop has already made.
- Close between Upper and Lower: the flat zone, where neither side holds.
- Percent setting: the larger it is, the fewer the flips and the later each one.
Best in, worst in
Best in steady trends, where a percent stop around a fast average stays on one side for long stretches.
Worst in instruments whose price level changes a lot across the test, since a fixed percent means a different number of points at 2,000 than at 5,000; and in chop, where the support line crosses OTT back and forth.
Three setups
1. Trade the support line crosses
Wire Signal into a Comparison greater than 0 for the long Entry and less than 0 for the short.
2. OTT as the trailing stop
Enter with another rule and exit a long through Set Exit Condition when the close falls below OTT.
3. Skip the flat zone
AND an entry with the close above Upper (high) for longs or below Lower (low) for shorts, so the strategy waits out the zone between them.
Common mistakes
- Using OTT with no delay and expecting the published behaviour. A delay of 0 is the Moving Stop Loss, which flips sooner and more often.
- Fine-tuning the percent. Look for a range of percents that works, not one value (overfitting in trading).
- Ignoring the price level. A percent stop on a contract that doubled in price is twice as wide in points by the end of the test.
OTT is a percent trailing stop around an adaptive average, drawn late; the support line against OTT gives the trend and the signals.