How to Use the Average True Range Indicator (ATR) 📈

Using the Average True Range. http://www.financial-spread-betting.com/course/volume.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! This lesson is about the Average True Range indicator, which is sometimes misunderstood. You can find the ATR very useful for certain specific functions.

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In understanding how it is formed, first you have to understand what a true range is, as opposed to simply the range of a price. The range of a price on any particular day is the difference between the high and low values. The true range goes one step further than this, however, and is a greater value if the previous day closed outside the range.

It’s defined as the greatest of the difference between the high and low; the high and the previous day’s closing price; or the low and the previous day’s closing price. Because it is based on how much the price changes, it’s a measure of volatility.

The ATR is, as it says, the average of several of these values. Usually it is taken as the average of the previous 14 days, though this number is adjustable. When the ATR is high, you can expect the price to be moving around a lot; and when the ATR is less, the price doesn’t vary much.

There are several ways that you can use the ATR to your benefit. One of them is when choosing a stoploss position when you enter a trade.

Whenever you start a trade, you should always place a stoploss order just in case the price goes in the wrong direction. The stoploss order will terminate your trade and save you losing more money than you need to.

There are several methods to determine where to put the stoploss. If the stoploss is too close to your entry position, regular fluctuations in the price could take you out of the trade before you make any money, even if your instinct in making the trade was right. But if your stoploss is too far away from your entry point, you stand to lose more money before your trade is ended by the stoploss if the market turns against you.

One way to get around this is to base the distance of the stoploss on the ATR. You can see the reason for this – if the market is volatile and the ATR is correspondingly high, your trade needs more room to fluctuate before you hit the stoploss. If the market is steady, the ATR will be small but that’s okay, as you don’t expect the price to swing around much and want the stoploss to be close to your initial position.

It’s up to you to try different ways, but frequently people will place a stoploss at two times the ATR from the entry point. This gives a little bit extra freedom for the price to fluctuate before you are closed out; but still closes your trade reasonably quickly if it turns out to be a loser.

You can also use the ATR to set a profit target of, say, two times the ATR above your entry point, so your winning trade will be automatically closed out. There are many other uses for the ATR as you will see later.

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Видео How to Use the Average True Range Indicator (ATR) 📈 канала UKspreadbetting