Daily forex strategy with average true range(atr)

Daily forex strategy with average true range(atr)Daily Forex Strategy With Average True Range (ATR)

Heres a profitable trend following strategy based on the 21 period Average True Range and the Supertrend indicator. Its designed to trade off the daily time frame. Please feel free to experiment with other time frames as well. Youll need to adjust ATR values for the lower time frames.

Indicators: SuperTrend, Average True Range (ATR 21)

Preferred time frame(s): Daily chart

Trading sessions: End of day

Preferred Currency pairs: Any

AUD/CAD Daily Chart

The chart shown above illustrates the easy trading setup. Low ATR values + green supertrend = Open a buy trade. Low ATR values + red supertrend = Open sell trade. Low ATR values mean low volatility thus reduces your trading risk.

Trading Rules

Average True Range has to be below 0.0100 (low volatility)

Supertrend flips from red to green color (bullish trend)

Go long. Set stop-loss at 0.75% of the current ATR value. For example at 75 pips if ATR value shows 0.0100.

Price objective methods: (1) Use risk-to reward 1:2 (i. e. risking 75 to make 150). (2) Trail you stop up below the rising Supertrend line.

Average True Range has to be below 0.0100 (low volatility)

Supertrend flips from green to red color (bearish trend)

Go short (sell) now. Set stop-loss at 0.75% of the current ATR value. For example at 75 pips if ATR value shows 0.0100.

Price objective methods: (1) Use risk-to reward 1:2 (i. e. risking 50 to make 100). (2) Ride the trend! Trail you stop down above the falling Supertrend line.

GD Star Rating

Daily Forex Strategy With Average True Range (ATR). 6.5 out of 10 based on 2 ratings

Using atr(average true range)indicator to determine the target point

Using atr(average true range)indicator to determine the target pointUsing ATR ( Average True Range ) indicator to Determine the Target Point

My favorite way to add take profit for orders is by using dynamic take profit depending on daily average movement for currency. ATR indicator are used to measures volatility for the symbol and predict the average movement for it .

How to use ATR indicator to Determine Take Profit Point for order ?

by using a percent of ATR Daily value as target point for orders. the percent value depends on market type ( ranging market. trending market ) and market session (asian session. america. ) .

for example in ranging market i will use 20% of ATR Daily Value as target point and 30% to 40% of ATR Daily Value in trending market like america session .

if ATR value is 0.0079 now and the order opened at price 1.3606 the target point will be

1.3606 + ( 0.0079 ) * 30% = 1.3635 point

Using Multi Target Points

another good way to maximize your order profits is using multi target points and close the order on two or three levels using ATR indicator to determine the target point for each part .

Forex trading strategy#23(trading with average daily range)

Forex trading strategy#23(trading with average daily range)Forex trading strategy #23 (Trading with Average Daily Range)

Submitted by User on July 20, 2009 - 01:43.

At a glance, your calculation is actually a 14-day ADR.

That should be the same as using ATR (Average True Range) on any plaform and setting it to "14". It's a similar gauge used by the Turtles for much longer term trades (they used it for their "N" value back then).

Submitted by Scott on July 23, 2009 - 10:27.

Here is the Average [Daily] Range indicator for MT4 that allows you to enter a fast and slow period. You need to put all three files in the correct locations and compile both mq4 files in that order:

HelperFunctions. mqh must be put in the include folder

HelperFunctions. mq4 must be put in the libraries folder and compiled

Average Range. mq4 must be put in the indicators folder and compiled

It calculates the average range (AR) in pips using the past N trading days. AR is the same as ADR (Average Daily Range) when the timeframe is set to PERIOD_D1. The function iAR() is written for code reusability so it can also be used for other symbols and timeframes as well.

You may also want to set the OptimizePerformance option to true. This limits the number of bars used for calculation to 400 by default (you can change this number to suit). Otherwise it would take a very long time to calculate the AR for all bars downloaded from the History Center.

My test results are consistent with the findings on this site: Volatile currencies table

In return please share your experience in using Average Range in your trading strategy.

Average true range-expmoving average trading strategy

Average true range-expmoving average trading strategyAverage True Range Exp. Moving Average Trading Strategy

lanouet92 said: 04-17-2014 04:42 AM

Average True Range Exp. Moving Average Trading Strategy

Hope you are ready to try a new trading strategy that I have composed, so far out of the last 250 trades I have averaged around a 73% winning percentage. To be completely honest, any trading strategy that has over a 70% winning percentage is worth the time of testing, so I am going to ask one favor from all of you willing and that may have extra time. That favor would be to test out this strategy further and let me know well it works for you!

If you are unfamiliar with the Average True Range indicator I did create a post about the indicator that covers the basics of what you need to know about this indicator, so before reading any farther make sure you read up on that indicator real quick! Here is the link that you need to click on to bring you to the ATR indicator: binaryoptionspimp/showthr. ange-Indicator

One important thing to note is that this strategy is strictly for stocks, if you read the indicator post then you would know that this indicator only works for security assets, a. k.a. meaning stocks!

Here are the steps you are going to want to follow when using this trading strategy.

1) Find your stock asset, set your time frame for 15 to 30 minutes and add the ATR indicator along with a front weighted moving average indicator set at a period of 1 and moved right 8. This can be done on Freestockcharts.

2) We need to wait for our FW moving average line to cross our Average True Range line in a downward or upward direction. If there is an upward break between our blue and yellow line then we need to make sure a bullish candle is present directly above the break, if there is then we can place a CALL trade, however, if there is not then do not place the trade! Now on the other hand, if there is a downward break between our blue and yellow line, we need a bearish candle to be present directly above the crossing, if there is then place a PUT trade.

-Expiry times should consist of 15-30 minutes, also make sure you are not rushing into your trades, patience is the key in this industry!

As you can see in the picture above both of the trades that we placed were winners!

Anyway guys, let me know your thoughts and would love to hear some feedback about this strategy!

Happy Trading!

Enter profitable territory with average true range

Enter profitable territory with average true rangeEnter Profitable Territory With Average True Range

Source: GenesisFT

How close together the upper and lower Bollinger Bands® are at any given time illustrates the degree of volatility the price is experiencing. We can see the lines start out fairly far apart on the left side of the graph and converge as they approach the middle of the chart. After nearly touching each other, they separate again, showing a period of high volatility followed by a period of low volatility. (For more, see Basics Of Bollinger Bands® .)

Bollinger Bands® are well known and they can tell us a great deal about what is likely to happen in the future. Knowing that a stock is likely to experience increased volatility after moving within a narrow range makes that stock worth putting on a trading watch list. When the breakout occurs, the stock is likely to experience a sharp move. For example, when Hansen (Nasdaq:HANS ) broke out of that low volatility range in the middle of the chart (shown above), it nearly doubled in price over the next four months.

The ATR is another way of looking at volatility. In Figure 2, we see the same cyclical behavior in ATR (shown in the bottom section of the chart) as we saw with Bollinger Bands®. Periods of low volatility, defined by low values of the ATR, are followed by large price moves.

Forex trading daily average

Forex trading daily averageAverage True Range (ATR)

Download: ATR. mq4

Download: ATR_histogram. mq4

Developed by Wilder, ATR gives Forex traders a feel of what the historical volatility was in order to prepare for trading in the actual market.

Forex currency pairs that get lower ATR readings suggest lower market volatility, while currency pairs with higher ATR indicator readings require appropriate trading adjustments according to higher volatility.

How to read ATR indicator

During more volatile markets ATR moves up, during less volatile market ATR moves down.

ATR indicator doesn't show a trend or a trend duration.

How to trade with Average True Range (ATR)

ATR standard settings - 14. Wilder used daily charts and 14-day ATR to explain the concept of Average Trading Range.

The ATR (Average True Range) indicator helps to determine the average size of the daily trading range.

In other words, it tells how volatile is the market and how much does it move from one point to another during the trading day.

ATR is not a leading indicator, means it does not send signals about market direction or duration, but it gauges one of the most important market parameter - price volatility. Forex Traders use Average True Range indicator to determine the best position for their trading Stop orders - such stops that with a help of ATR would correspond to the most actual market volatility.

When the market is volatile, traders look for wider stops in order to avoid being stopped out of the trading by some random market noise. When the volatility is low, there is no reason to set wide stops; traders then focus on tighter stops in order to have better protections for their trading positions and accumulated profits.

Let's take an example:

EUR/USD and GBP/JPY pair. Question is: would you put the same distance Stop for both pairs? Probably not. It wouldn't be the best choice if you opt to risk 2% of the account in both cases. Why? EUR/USD moves on average 120 pips a day while GBP/JPY makes 250-300 pips daily. Equal distance stops for both pairs just won't make sense.

How to set stops with Average True Range (ATR) indicator

Look at ATR values and set stops from 2 to 4 time ATR value. Let's look at the screen shot below. For example, if we enter Short trade on the last candle and choose to use 2 ATR stop, then we will take a current ATR value, which is 100, and multiply it by 2.

100 x 2 = 200 pips (A current Stop of 2 ATR)

Powerful indicator average daily range

Powerful indicator average daily rangePowerful Indicator: Average Daily Range

In this short article I would like to go over the concept of Average Daily Range (AVDR) of currency pairs traded in the forex spot market. The concept of daily range is very important for any trading strategy you employ when trading forex.

Every single currency pair has a daily range. The daily range is measured from the high of the day to the low of the

day. For example, if in a particular day the GBP/USD made a high of 1.9500 and a low of 1.9380 the daily range for

that day was 120 pips. Now, a specific days daily range is not relevant. What is important is the average daily

range over a specific period of time. Why? Simply because on any given day the range might have been out of the

ordinary due to several reasons such as a news announcement, a holiday etc. This day's range might not reflect

the true range of the currency pair.

Currency Pair

The way I calculate a currency's average daily range is very simple. I go back about three months and I record the

difference between the high and low of every day within these three months. After that, I simply add all the data I

gathered from this time period and divide it by the number of days in the sample. This will give me the average

daily range of the currency pair within the past three months. This number will reflect the true range of the pair

rather than the range recorded on any specific individual day. Hence, it is more accurate and more reliable.

Forex Trading System

So, why go through all this trouble of calculating a currency's average daily range? Well, depending on the

currency pair you are trading, this might help you establish more accurate rules for your forex trading system.

As an example, suppose you know that the average daily range of a certain pair is 90 pips. This means you can

now enter your trades, set your stop losses and profit objectives with more precision. Suppose you are using a

system that goes for a fixed 60 pip profit. Now, a long signal is triggered at a point were the pair has already

moved 40 pips on that particular day. You know that if you place a long trade now the currency pair would have to

move 60 pips more in order for it to reach the profit objective. However, these 60 pips more means that the

currency pair you are trading would have to have a total daily range of 100 pips. But remember, the average daily

range of that pair is only 90 pips. This means that you might want to reconsider your profit objective.

Another example could be when you are designing a forex trading system. It is good to know the average daily

range of the currency pair you are designing the system for so that you can calculate realistically the profit

objectives. If you know that the pair moves on an average 120 pips per day, you would not set your systems

parameters to take a 400 pip profit in 2 days!

Average daily range is just another tool I use to give me a better read of the current market conditions and a

currency's personality. I think it is an important one that not to many traders use. Sure, many traders know more

or less the daily range of any specific pair, but do your homework and you will know not more or less but exactly.

Remember, as traders we need all the advantage we can get over the competition!

I wish you all the best in your trading,

Average true range(atr)

Average true range(atr)Average True Range (ATR)

In order to understand what the Average True Range indicator is, you must first understand what the True Range indicator is. While the True Range indicator is rarely used anymore, the ATR a derivative of it quite often is.

The True Range indicator can be defined as the greatest of the following possibilities:

Current high minus the current low of the chart.

The absolute value of the current high minus the previous candles close.

The absolute value of the current low minus the previous candles close.

The Average True Range is a moving average of the true ranges. In other words, it is a smoothed out representation of those calculations mentioned above. This makes it much easier for traders to gauge whether or not a pair is acting more or less volatile than usual. This can be important if you are looking for a potential entry signal as pairs will only be quite for so long. When the ATR is well under the norm, it often is followed by an explosive move in one direction or another.

The emphasis is “one direction or another”. This indicator simply measures whether or not we are moving within out of normal measures of volatility in the pair. It doesnt tell us which direction we are looking to go.

Some traders will use this indicator in a very simple way: Wait for a move in one direction that exceeds the average ATR, showing that there has been a shift in market behavior as not only did the traders go in one direction but they also went farther in that direction than usual. This can give hints towards the conviction of the recent move.

ATR can be used as a main indicator if used in a similar manner as described above. However, many traders will also use trend lines and the like to identify significant areas in which to look for volatility spikes as can be seen in the ATR window.

Average true range (ATR)

Before reading this lesson, you should have previously read through:

The average true range (ATR) indicator shows how much the price of an asset has been moving over a period of time. In other words, it shows how volatile the asset has been.

The ATR indicator shows how much the price of an asset has been moving over a period of time.

It helps traders predict how far the price of an asset may move in the future and is also useful when deciding how far away to place a stop loss or a profit target .

The ATR is a type of moving average of the asset's price movement, usually over a period of 14 days, but it can vary depending on your strategy .

The ATR appears on a chart as a moving average-type line

The ATR indicator is usually shown on a chart as a line. The image below shows how the ATR indicator typically appears on a chart:

The blue line in the chart represents the change in volatility of the price.

In the top left hand corner you can see the actual value – 0.0065 in this example. This is the range in pips that the price has moved over the given time frame. The above chart is a daily chart and so in this case, the volatility of the price is an average of 65 pips over the last 14 days.

The volatility of an asset can increase or decrease

The image below shows how the ATR shows high and low volatility:

Average True Range (ATR)

The Average True Range is an indicator used for determining the volatility of a pair in the Forex market.

The ATR is used for technical analysis is other markets too such as stocks, options, and futures. What the ATR does is simple. It measures the range of price movement for a specific price period.

History of the ATR

The ATR was developed by J. Welles Wilder. He started with the concept called True Range .

A. current high the current low

B. current high the previous close

C. current low the previous close

The greatest of these three calculations is used to determine the True Range (TR).

The ATR Calculations

The ATR is the Average True Range. Essentially the ATR is the average of a specified number of periods ATR. If you are using a 14 period ATR. The ATR will be the average of the past 14 periods TRs (True Ranges).

(you can click on the image to enlarge it)

As illustrated in the picture above, the ATR indicates volatility. When there is a lot of volatility, the ATR is high. When there is little volatility, the ATR is low.

The chart above is a daily EUR/USD chart and volatility is a little lower recently. You can tell by seeing it has been ranging more than trending.

There reasons for a low ATR and low volatility could be many. The current situation with the EUR/USD is this: good news for the Euro and for the USD has been common recently, almost balancing each other out.

Along with positive news releases, there is a lot of uncertainty with the Euro and the USD. The Euro is currently going experiences severe issues with Spain and Greece and leaders want to see more fiscal union. The USD recently passed QE3 and the U. S. Presidential Election is taking place next month.

All these things affect Forex market expectations, which affects the amount/direction of the money being traded, which affects volatility, which affects the ATR.

More Indicator Articles

Measuring volatility with average true range

Measuring volatility with average true rangeMeasuring Volatility with Average True Range

By. Jeremy Wagner, Lead Trading Instructor, DailyFX Education

Average True Range (ATR) is a tool used in technical analysis to measure volatility. This indicator does not provide an implication for the direction of price trend. It simply measures the degree of price volatility from high to low for the day.

A simplified explanation of the ATR is that it measures the range of a session in pips and then determines the average of that range o ver a certain number of sessions. For instance, if using a daily chart with a default setting of 14, the ATR will measure the average daily range, from high to low of the previous 14 days. This way you are getting a current reading on the volatility of a specific currency pair. The idea is that large and increasing values shows ranges that are expanding. As the market normally breathes in and out, this expansion of volatility indicates to us how far prices may reach.

As a result, many traders us ATR as a method to identify and limit risk on trades. For example, if you typically hold trades open for at least a day, you will want to use a stop loss level that is at least 1 Daily ATR value away. That way, as the market goes through its normal breathing, the majority of the movement is likely to be contained within 1 ATR value.

Lets compare 2 different markets with different ATR values.

(Created using FXCMs Marketscope 2.0 charts)

The current 14 da y ATR for the EUR/GBP is about 8 2 pips while the same 14 day ATR for the GBP/ AUD is more than three times that amount at about 25 6 pips. So we can see why a standard 100 pip stop is not the best way to determine your risk on every trade. Many traders will simply use the ATR for their risk. They would place their stop 8 2 pips from their entr y in a EUR/GBP trade or 25 6 pips from their entry in a GBP/ AUD trade. This is one way to base your risk on the reality of the current market you are trading.

Another interesting point on the charts above is where values have generally stood over the recent past. As you can see in the EUR/GBP, it has produced ATR values less than 100 pips for the majority of the previous 12 months.

On the GBP/AUD, at its lowest zone of volatility (red boxed area), it averaged around 140 pips. It is apparent the volatility on the GBP/AUD reaches beyond the current market conditions. It has historically had 2-3 times the size of volatility as the EUR/GBP.

Additional educational resources

Jeremy Wagner contributes to the Instructor Trading Tips articles.


To receive more timely notifications on his reports, email jwagnerdailyfx to be added to his distribution list.

Most active trading times in forex

Most active trading times in forexMost Active Trading Times in Forex

When is the Forex Market Open?

Though the forex market is open 24 hours a day, there are specific times when the market is faster moving, and it’s easier to make money. There are three main time zones for trading – New York, London and Tokyo. Two sessions are usually always overlapping. In terms of Eastern Standard Time, New York is open from 9am to 5 pm, London is open from 3 am to 12 pm, and Tokyo is open from 7pm to 4 am. So, naturally, the busiest times in the market are from 3 to 4am, and then from 8am to 12 pm, because two markets are overlapping. And, since London overlaps with both Tokyo and New York at some point, it usually has the busiest session.

What is the Best Time to Trade?

The middle of the week is also usually the busiest time in terms of trading. Tuesday and Wednesday shows much more movement and activity than the beginning or end of the week. Friday is generally the slowest day, when things calm down as soon as the London session closes. Sundays and Holidays are generally dead as well, and it’s unadvised to do lots of trading then.

Most Active Currency Pairs

London Session (3am to 12pm ET)

GBP/CHF - average range 145 pips

GBP/JPY - average range 140 pips

USD/CHF - average range 115 pips

GBP/USD - average range 110 pips

USD/CAD - average range 90 pips

EUR/USD - average range 80 pips

USD/JPY - average range 75 pips

New York Session (9am to 5pm ET)

GBP/CHF - average range 130 pips

GBP/JPY - average range120 pips

USD/CHF - average range 110 pips

GBP/USD - average range 90 pips

USD/CAD - average range 80 pips

EUR/USD - average range 75 pips

Tokyo Session ( 7pm to 4am ET)

GBP/JPY - average range 110 pips

GBP/CHF - average range 90 pips

USD/JPY - average range 75 pips

USD/CHF - average range 65 pips

GBP/USD - average range 60 pips

AUD/JPY - average range 55 pips

Measure volatility with average true range

Measure volatility with average true rangeMeasure Volatility With Average True Range

J. Welles Wilder is one of the most innovative minds in the field of technical analysis. In 1978, he introduced the world to the indicators known as true range and average true range as measures of volatility. Although they are used less frequently than standard indicators by many technicians, these tools can help a technician enter and exit trades, and should be looked at by all systems traders as a way to help increase profitability.

What Is the AverageTrueRange?

A stock's range is the difference between the high and low price on any given day. It reveals information about how volatile a stock is. Large ranges indicate high volatility and small ranges indicate low volatility. The range is measured the same way for options and commodities - high minus low - as they are for stocks.

One difference between stocks and commodity markets is that the major futures exchanges attempt to prevent extremely erratic price moves by putting a ceiling on the amount that a market can move in a single day. This is known as a lock limit. and represents the maximum change in a commodity's price for one day. During the 1970s, as inflation reached unprecedented levels, grains, pork bellies and other commodities frequently experienced limit moves. On these days, a bull market would open limit up and no further trading would occur. The range proved to be an inadequate measure of volatility given the limit moves and the daily range indicated there was extremely low volatility in markets that were actually more volatile than they'd ever been.

Wilder was a futures trader at that time, when those markets were less orderly than they are today. Opening gaps were a common occurrence and markets moved limit up or limit down frequently. This made it difficult for him to implement some of the systems he was developing. His idea was that high volatility would follow periods of low volatility. This would form the basis of an intraday trading system. (For related reading, see Using Historical Volatility To Gauge Future Risk .)

As an example of how that could lead to profits, remember that high volatility should occur after low volatility. We can find low volatility by comparing the daily range to a 10-day moving average of the range. If today's range is less than the 10-day average range, we can add the value of that range to the opening price and buy a breakout.

When the stock or commodity breaks out of a narrow range, it is likely to continue moving for some time in the direction of the breakout. The problem with opening gaps is that they hide volatility when looking at the daily range. If a commodity opens limit up, the range will be very small, and adding this small value to the next day's open is likely to lead to frequent trading. Because the volatility is likely to decrease after a limit move, it is actually a time that traders might want to look for markets offering better trading opportunities.

Calculating the AverageTrueRange

The true range was developed by Wilder to address this problem by accounting for the gap and more accurately measuring the daily volatility than was possible by using the simple range calculation. True range is the largest value found by solving the following three equations:

TR = H – L

TR = H – C.1

TR = C.1 – L

TR represents the true range

H represents today's high

L represents today's low

C.1 represents yesterday's close

If the market has gapped higher, equation No.2 will accurately show the volatility of the day as measured from the high to the previous close. Subtracting the previous close from the day's low, as done in equation No.3, will account for days that open with a gap down.

Thermostat trading strategy pdf

Thermostat trading strategy pdfA position is triggered when the market moves a certain range from the open price. If today is a buy easier day then:Initiate a long position at the open price + 50% of the ten-day average true range.

Initiate a short position at the open price – 100% of the ten-day average

true range

If today is a sell easier day then:Initiate a short position at the open price – 50% of the ten-day average true range. Initiate a long position at the open price + 100% of the ten-day average true.

sellEasierDay = 0

if(Close > keyOfDay) then sellEasierDay = 1

if(Close<=keyOfDay) then buyEasierDay = 1

avg3Hi = Average(High,3)

avg3Lo = Average(Low,3)

if(buyEasierDay = 1) then

longEntryPoint = Open + atr10 * 0.5

shortEntryPoint = Open - atr10 * 0.75

if(sellEasierDay = 1) then

longEntryPoint = Open + atr10 * 0.75

shortEntryPoint = Open - atr10 * 0.5

longEntryPoint = MaxList(longEntryPoint, avg3Lo)

shortLiqPoint = entryPrice + 3 * atr10

Liquidate short position if today's market action

>= shortLiqPoint

If you have a long position that was initiated by the short-term swing approach then

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Trading strategy using atr

Trading strategy using atrTrading strategy using atr Best Binary Option Brokers olympiapizzawestport

Posted by on September 5, 2015

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Trading strategy using atr Binary Deposit Bonus l2lconsulting

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Effective forex volatility indicators revealed

Effective forex volatility indicators revealedEffective Forex Volatility Indicators Revealed

Knowing the condition of the market you are in can be an advantage to your trading and these can be done with the help of several forex volatility indicators. Basically the market will be moving in the following 4 conditions

Trending and Quiet

Trending and Volatile

Ranging and Quiet

Ranging and Volatile

The reason why you need to know the condition of the market is because it will determine what trading strategy you have to employ in order to be profitable. There is no one size fits all strategy that works on all market conditions as different market condition requires different trading methodology. What works for a trending market may not work in a ranging market and vice versa.

In this post, I will share with you several forex volatility indicators that I often use to help me check the market volatility before I start to do my trading.

1) Bollinger Bands : You should have heard of the BB as it is commonly mentioned in trading books and courses. The Bollinger bands consist of an upper and a lower band that envelope the candlesticks and it is through these bands that you tell the market volatility.

Bollinger Bands Indicator

When the Bollinger bands are squeezed together, you are in a low volatility market. When they are far apart, you are in a market of high volatility. One good use of this indicator is to help you trade the forex breakout .

2) Average True Range Indicator: This indicator can be used to give you a gauge of the range of the market. Normally, it is set as 14 and depending on the time frame you are in, it will calculate for you an average true range of those 14 candlesticks.

If you are trading the daily chart, it will calculate for you the average true range based on the 14 daily candlesticks. The higher you see this indicator moves, the more volatile is the market and the lower you see it moves, the less volatile is the market.

After knowing the volatility of the market, you need to find out whether the market is trending or ranging so that you can decide on the type of trading strategy to use.

Below are the 2 forex indicators that I use to tell the movement of the market

1) Moving Average : In order to tell whether the market is trending or not, you can plot a 200 EMA and then read the gradient of the EMA. If it is sloping up, you are in an uptrend and if it is sloping down, you are in a downtrend.

Trading strategy atr

Trading strategy atrRecommended:

How To Use ATR (Average True Range) In Trading Systems

Fri, 06/26/2009 - 08:20 — IndicatorForex

The Average True Range is an indicator developed by Welles Wilder and published in his famous book 'New Concepts in Technical Analysis'. It is used to calculate the average size of bar, in points. The word 'True' is added to the name because the indicator also takes into account Gaps and Limit moves, when calculating Average Range.

Absolutely NO THINKING is needed, just buy when Blue and sell when Red.

Calculation of the Indicator

For each bar, True Range is defined as the maximum of the three:

1. Difference between High and Low.

2. Difference between High and previous Close.

3. Difference between Low and previous Close.

Than, a Moving Average (normally of 14 period) is calculated on the True Range, making it the Average True Range.

How to Use in Trading Systems

Identifying Bottoms and Tops

The ATR can be very useful in identifying potential bottoms and tops in markets. Using the assumption that bottoms and tops occur on light volume (and hence lead to reversal), a common way of interpreting the ATR is by looking for low readings. Periods where the ATR is in his local minimum indicate that price has reached a top or a bottom, and is prone to reversal.

Globalize Trading Systems to Adapt To Changing Market Volatility

Many novice trading systems are using solid number, hard coded in their systems, as parameters. For example: 15 pips for Stop Loss, 30 pips for Take Profit, etc. This is a wrong attitude of creating Trading Systems, because pairs and commodities constantly change in volatility and volume.

The ATR indicator can be used instead of solid number, to make the Trading System take into account the changing volatility of the commodity. For example: Instead of 15 pips for Stop Loss - 30% of the current Average True Range. Instead of 30 pips for Stop Loss - 60% of the current Average True Range. This way, in case market volatility changes dramatically, the Stop loss and Take Profit will auto-adjust themselves and your Trading System will continue to profit.

This is also very important issue to making the system global - to work on as many pairs and commodities. Using the ATR instead of using constant numbers can make your system work on many more pairs and commodities, thus increasing potential profits.

Trailing Stop Loss

The ATR can also be used for Trailing Stop Loss - a famous trailing stop loss mechanism called the 'Chandelier' stop loss uses the ATR to determine the amount of pips to trail stop. This way in case the currency pair becomes volatile the trailing stop adjusts itself and prevents early exit - and loss. This is also known as the Chandelier Trailing Stop, which is a well-known strategy for trailing stops in Trading Systems.

The ATR can be very powerful addition to your Trading System. Learn to use it and your trading systems will improve.

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ADX, RSI ATR strategy

Hey I thought I'd share a strategy that has worked fairly well for me so far. Basically it uses a 14 period ADX and a 5 and 21 period RSI as its signals for entry. The system is based on the 1H GBPJPY but it might work with other pairs and time-frames.

Buy Signals

21 5 period RSI breaking thru 30 from below

ADX > 20 and rising +DI rising above - DI

Close when 21 day RSI falls thru 70 having been above previously

the ATR is used to set the stop loss which I set at 2-3 times the ATR value. This helps to keep you being stopped out of otherwise profitable trades. The last trade is half a lot and the green lines represent the stop losses for those trades. The first trade shows nicely how the ATR stop loss keeps us in a nice profitable trade. The entries are usually pretty accurate but the exits could do with some work. Any thoughts?