ATR (AVERAGE TRUE RANGE)

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ATR(AVERAGE TRUE RANGE)HOW I USE IT TO PLACE
FUNDAMENTAL TRADES

• Reference
• https//www.platinumtradingacademy.com/

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Index

• ATR(average True Range)How I Use It To Place
  Fundamental Trades
• ATR Measured
• 1. How I Use The ATR When Placing A Fundamental
  Trade
• 2. Using The ATR To Trade Volatility
• 3. Using The ATR For Profit Targets
• 4. Using The ATR As A Filter

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ATR(average True Range)How I Use It To Place
Fundamental Trades

• Before looking at how I use the ATR, it may be of
  some use to define what the ATR is.
• The Average True Range indicator is a simple tool
  but is very useful in measuring volatility.

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• In very simple terms, the ATR measures the price
  range of a currency pair (it could also be a
  stock or any security) so that the higher the
  volatility of the currency pair the higher the
  ATR.

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ATR Measured

• The ATR is measured as the greatest of any of
  the following 3 metrics
• The current high minus the low.
• The value of the current high minus the previous
  close.
• The value of the current low minus the previous
  close.

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• Whichever is the highest of these three metrics
  is then represented as the average true range of
  the currency pair.
• Typically, the number is then smoothed using a
  14-day moving average.
• Finding the average range of a currency pair has
  a number of important implications that can help
  make better trading decisions.

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• The best example is for POSITION (FUNDAMENTAL)
  trading.
• These are trades intended to be of a very
  long-term nature.
• There are a number of uses for the ATR as well as
  for my FUNDAMENTAL trade set-ups and I will add
  these as well.

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• I have listed four ways below of how to use the
  ATR as a support indicator when placing a trade,
  or use it effectively when you are already in a
  trade.

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1. How I Use The Atr When Placing A Fundamental
Trade

• As my approach for FUNDAMENTAL trades is from of
  a longer-term perspective, I look at the Monthly
  ATR for the currency pairs that I am interested
  in trading.
• The background to my trades from my existing
  fundamental view is that equities are going to
  roll over and sell off and at the same time
  commodity currencies are going to weaken such as
  AUD, NZD and CAD.

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• Keeping things very simple, which is what I try
  to do.
• I am going to use my existing live trades as
  examples.
• Firstly, I look for Fibonacci levels for entries
  in conjunction with pivot points.

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• Once I have those levels analyzed, I look at my
  currency pair establish how much I am prepared to
  risk in the trade and what type of lot I will use
  and determine what quantity I will buy or sell
  based upon my proposed entry and stop loss
  levels.
• As I have written, many, many times in my blogs
  certain currency pairs are very volatile and
  smaller trade sizes should be used to cope with
  and absorb the wild moves associated with such
  pairs.
• The ATR gives you a fantastic lead in connection
  with this.

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• Additionally, you can hedge any trades to give
  you another layer of protection given their
  longer-term nature.
• The potential for huge swings before your trade
  takes shape in the chosen direction is always
  there and hedging limits both your risk and
  exposure.
• (Hedging will appear as a future discussion topic
  in the TRADER TOPICS section) 

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• GBP/NZD Entry Level 2.1090
• Monthly ATR 850
• ATR Stop 1.9340
• My Stop placed on the trade 1.9500
• As you can see I have room to move the stop if I
  want to meet the ATR indicator levels, should I
  decide that I want to.
• You must realize with such huge stop loss levels
  in place, an appropriate trade size should be set
  accordingly.

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• As an example, and, all my trades above are
  around these lot sizes - GBP/NZD
• Potential loss 850 pips.
• Trade size at outset 2 x micro lots (850 x 0.20)
  170.00 risk.
• If I did not alter the lot size or the limit and
  the trade hits my limit/target of 2.1200. Trade
  size 2 x micro lots (1,010 x 0.20) 202.00
  reward.

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• Obviously, when the trade is profitable I would
  add lot sizes and move / adjust my limit
  accordingly.
• I would add lots and take profits along the way
  to my profit target.
• As a minimum I would be looking for a 21 ratio. 

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• They key is closing your hedge trade in the
  opposite direction at the correct time to
  maximize profitability.
• It is not that straightforward at times.
•  
• There are other uses for the ATR that are more
  traditional.

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2. Using the ATR to trade volatility

• The ATR can be used as a trading signal in its
  own right.
• Lets say that you are watching a market for a
  number of days and you have noticed that
  volatility has dropped significantly from its
  historical average.

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• Since low periods of volatility often precede
  explosive moves in either direction, you could
  wait for the ATR to increase and place a trade in
  the direction of the move.
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• Crossovers can also be used. For example, placing
  a trade when the fast ATR (e.g. 14 period)
  crosses over a slower ATR (e.g. 100 period).
• This can be an effective breakout volatility
  strategy.

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3. Using The ATR For Profit targets

• For day traders, knowing the average range of a
  currency pair is extremely useful since it allows
  you to estimate how much profit potential there
  is in the market.
• For example, there is no point looking for 150
  pips of profit from a trade in the GBP/USD, if
  the average range for that market over the last
  14 days is only 80 pips.

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• You will simply end up waiting for profits that
  do not come and will likely end up losing money.
• A better solution is to halve the 14-day ATR and
  use this as your profit target.
• In other words, after entering a trade in the
  GBP/USD as above you can give yourself a profit
  target of around 40 pips.
• This is a much safer way to trade.

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4. Using The ATR As A Filter

• The average true range is also a good indicator
  to use for filtering out trades.
• Traders typically need volatility to make any
  money so if you have a system that generates lots
  of different signals you can filter out those
  currency pairs that are low in volatility by
  discarding those with a low ATR.

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• Concentrating on currency pairs with the highest
  ATRs mean you can trade the markets that are
  experiencing the most movement and therefore the
  most profit potential.

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Thank You