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## ATR (AVERAGE TRUE RANGE)

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### 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. – PowerPoint PPT presentation

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Title: ATR (AVERAGE TRUE RANGE)

1
ATR(AVERAGE TRUE RANGE) HOW I USE IT TO PLACE
• Reference

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

3
(No Transcript)
4
ATR(average True Range) How I Use It To Place
• 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.

5
• 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.

6
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.

7
• 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

8
• The best example is for POSITION (FUNDAMENTAL)
• These are trades intended to be of a very
long-term nature.
• There are a number of uses for the ATR as well as
these as well.

9
• 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

10
1. How I Use The Atr When Placing A Fundamental
• 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
• 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

11
• 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.

12
• 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.

13
you another layer of protection given their
longer-term nature.
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

14
• 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.

15
• 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
size 2 x micro lots (1,010 x 0.20) 202.00
reward.

16
• Obviously, when the trade is profitable I would
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.

17
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

18
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.

19
• 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.
•
• 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.

20
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.

21
• 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.

22
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.

23
• 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.

24
Thank You