Can ATR strategy make you a profitable trader? How to trade it and make more money? What Average True Range strategy is the right one? How to use this ATR indicator properly without blowing up our accounts? Lets find out.
ATR or Average True Range, is one of the most useful Indicator out there. It is easy to use, that even your dog can trade using ATR and become a millionaire. Average True Range is loved by many professional traders so much, because it solves one of the biggest problems in Trading Forex and Stocks. ATR indicator, is used to set the stop loss properly. Something that many new traders struggle with. If you are good at predicting direction of a Stock, there is a high chance of losing money, if you don’t set your stop loss properly. If you don’t set your stop loss and profit target at the right place, Price can hit your stop loss first, and then go in your desired direction.

Unlike most indicators that are easy to understand, but are difficult to use. Average true range, is always easy to understand, and easy to use on all time frames.

The ATR stop loss strategy is simple. I have also used this strategy in my 50 dollars small account challenge series, to set the stop loss at the right place. I will show the trade that I am currently In, after we understand how to use this indicator properly.

Here’s how the ATR indicator looks like on trading view. It will come with one line. By default, this indicator will come with the ATR length value of 14. I recommend using the default settings, as most traders will. What we are looking for on this indicator, is the ATR value when we are about to enter a trade. We are not looking for an up trending or down trending ATR line. We only want this value.

Like the name says, this indicator will show the True Average Value of a Stock or Forex Pair. On this chart, and by default, it is showing the average of last 14 candles. This information is very useful to avoid your stop loss getting hit, before price finally decides to move in your favor.

Lets look at an example. Lets say, you wanted to sell a forex pair. Maybe it is at a strong resistance, so you want to go short. Lets say this line is the resistance line. If you set your stop loss just above the resistance line, there is a high chance that your stop loss will get hit, Because there is not enough room for price to wiggle around, before going in your direction. If you set your stop loss too far from your entry, you will not get a good risk to reward ratio, and that’s not good.

By adding ATR value to the stop loss, you are taking average range of the last 14 candles into consideration. In other words, you are taking volatility into consideration. If the last 14 candles were big, the ATR value will be high. It means, market is volatile and bigger candles can form, therefore, we should not set our stop loss close to our entry. Similarly, If the last 14 candles were small, the ATR value will be low. It means, market is not that volatile and there is a low probability of a big candle appearing, therefore, we can set our stop loss close to our entry.

That’s all there is to it. Here’s what happened to the trade we took as an example in this video. Our Technical analysis was spot on.

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