The ATR trailing stop is based on, obviously, the AVERAGE TRUE RANGE. “The Average True Range indicator is a moving average of the true range for a set number of periods.”
So for a trailing stop one might use a multiple of the current ATR. If the ATR is, say, 10 points. A stop could be placed at 2 times the ATR which would be obviously 20pts away from the current price.
It’s a very simple concept and seems to be one of the most popular stop methods when it comes to using indicators.
Below is a metatrader chart with the ATR Stop as an example. However, Ninjatrader has an ATR Stop script as well.
As you can see it is very good as preventing you from going into a loss with you position but it also allows a bit of room on pull backs. Which it a hard balance to find in a stop method, especially and indicator.