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This site is currently inactive as I have decided to move away from exclusively trading Forex in 2010 and as such will not be taking on new coaching clients in this area.

 



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Until next time


happy trading 


Mr Phil Newton or on LinkedIn Phil Newton trader

Trading with Average True Range (ATR)

ATRTradestation, my current charting provider has a good tool called Radar, which allows me to have the Average True Range (ATR) figured displayed in a table so I don't need to have a daily chart always open with those squiggly line all over the chart.

As you may appreciate this is not an exact science as there will be days when the ATR is not done and days when the ATR is complete smashed and moves double its normal ATR.

However, it has served me well for many years to highlighting which pairs have "trade potential" and which pairs I should probably leave for the day.

Mentioned in a previous article was the Average True Range or ATR for short.  I also usually refer to this as the Average Days Range.

Lets get right to the point, I do not see any need to bore you with how it is calculated as there are many books on the subject of indicators that can tell you this. 

What I'm interested in is;

What does a given currency pair move on average from its high to its low?

I tend to look at the 14 period and 100 period ATR on daily charts to see what, on average, the high/low range is over the last 14 days and the last 100 days to give me a short term and longer term average. 

Why is the ATR important to me?

Well firstly what I want to know is does the currency pair that I'm looking at have"potential" to move?

By looking at the ATR I can see what it does on average over a given period.  This is my "expectation" for the day.

Going back to the "Trade Potential" article you will see in detail how I use this indicator.

As a quick example here, IF I have a 100 pip ATR and the overnight range is 30 pips then I have a 70 pip"expectation" for the days intraday trading.

On the above image, EURJPY shows that on average it puts in about a 200 pip high to low range during a trading day (at the time of this writing). So even IF it has done a 100 pip overnight move then there is still "potential" for it to move a further 50% or 100 pips during the current trading day.

Tradestation, my current charting provider has a good tool called Radar, which allows me to have these figured displayed in a table so I done need to have a daily chart always open with those squiggly line all over the chart.

As you may appreciate this is not an exact science as there will be days when the ATR is not done and days when the ATR is complete smashed and moves double its normal ATR. However, it has served me well for many years highlighting which pairs have a trade potential and which pairs I should probably leave for the day.