ATR (AVERAGE TRUE RANGE) MADE SIMPLE ☝

in this video God is gonna cut the ATR made simple stay tuned hatred is a very warm welcome to all right so question from subscriber Scott Hughes he's written quite long question so I'll paraphrase this and he's basically said understand a lot of concepts he's on a demo account he's looking to go live at some point not ready to pull the trigger on that yet that's a good strategy to do keep it kind of the risk management be cautious before you're ready to kind of put some skin in the game and he said listen I understand Bollinger Bands one of the things that he samples he said it but I can't really grasp and understand how and when I would use the ATR branding to trading and someone has said and he's also said here yeah if you can't learn the ATR you'll never be a good trader some people might look at me and say that now first thing first Scott appreciate your question again I appreciate all you guys questions comments etc you know first thing that's addressed that nobody is going to say you can't learn the ACI you'll never be a good trader it's a complete nonsense you don't need the ATO hostage frayed and hopefully off this video you will understand the concept of it but many many people trade and don't look at the ATR at all many people don't use any indicators one indicator and just fundamentals there's so many ways to trade and if something doesn't make sense to you even after this you just don't feel like it's good then just don't use it you know carry on with your Bollinger Bands or whatever stuff that suits you as a trader you know we talk about a lot of concepts a lot of indicators a lot of different things on the channel I don't use a lot of them but I share my thoughts and comments about them and how you could perhaps integrate them ATR however and those you know me know that I do use ATR I like ATR I like it a lot and I'm gonna go into in some detail on that now or simply simplify a little bit I'm just hopefully explain why I think it's such a powerful tool alright so anything else on here no that's pretty much it so thank you Scott appreciate your question okay so they get right down to it so ATR Average True Range those your subscribers the channel know we've got a few videos doing different things and strategies revolving around the ATR what we can use it for first think about it as let's go right back to basics so ATR is really a way of looking at the market and gauging its volatility for want of a better word so the average true range if we dial it right back we could effectively say it when we're plotting the graph if we had a one period ATR ie was looking at one day that's what one period as well the period is a 10 period is the average of 10 days 40 from the daily chart 14 period whatever indicates that maybe so let's say we go back to a 1 period which is one day if we didn't if we got rid of the average true par and we said just a one day's range it would very simply be the high and the low of the day now obviously the the more volatile the day the wider that range is going to be if it a quiet day we might have 20 30 pips range we've got a really really volatile day and say some neuters come out or whatever it was it's caused a catalyst for a lot of people buying and selling we're over to a 300 pick range day so the range on that day would be 300 pips if we had that the next day the next day the next day now that could be considered quite a high range especially if the previous week we were doing ranges of 50 30 2017 those kind of order of magnitude and we suddenly went into 300 that would indicate the hey there's some volatility coming into the market things are changing now how can we use that we look around a second but from a basic perspective that's exactly what it's telling us if we were plotting you know a number of the range and that number started to increase then we could just look at that number we couldn't see the price we wouldn't see when a price was that we no reference to where the price was and also be no reference to whether we're not trend or downtrend if we just looked at the ATR but all we would see is that there's a big range on that day now if we expand that slightly and we say okay if we took an average of say 10 days or 20 days and let's stick with 10 days and we just took an average of those of that range over the 10 days that would be a little bit that would dampen things down a bit right moving average is price over the 10 day period 10 day moving average is the average of price we use a simple one anyway over a 10 day period and it's plotting that as we go along so it's kind of smooths out the spikes in price same as an average range with about a true bit for now same as the average range of the 10-day period would kind of smooth out some spikes like a 400 pick range and went back to a 50 yes we get a little lift up in there in the in the average but it wouldn't kind of spike dramatically so just by looking at the average we can see how the trends of volatility are affecting the market will not affect in the market how the trends of volatility are changing so we've got the range we've got the average now we're not a true part so the slight difference here with what I just explained there with the range and average true range is the range takes into account for high in the low of the day that's the range of the day the highest point of day lowest point of day so imagine if we were talking about a stock let's say stock this easy to have an open and close the opening bell goes the closing bell goes highest price it got to let's say $48 it's the high-low $40 as an $8 range and that's just depending on where we're taking the start of the day low close a day if we're trading on FX so range we've got that out with you've got that the true part so the basically the easiest way of looking at this and I've kind of put down what how we calculate it but the easiest way of thinking of this is it allows for instances where you've got some some gaps and you've got some a kind of unusual move so rather than being the range of the day takes into account kind of the next day and stuff so what the average true range does although if you're looking at a one day it takes the highest of the high - the low to the range or the current high - the previous close it's an absolute value so it's a negative value it just goes into a positive value or the current low - the previous closer if you look at number 2 here if we had this scenario then it would take the higher of those numbers out of the range of the current day or the current high - the previous close the current low - the previous close that means that it takes into account if we had a significant gap because if the range is small on that day and the range was very small that the pride they put a gap tool overnight then that's still interesting and it wouldn't show up if we were just taking the intraday range so the ATR kind of allows for that and as this little bit of a flavoring but if you were to look on your chart and plots in range and average true range they're very very similar apart from when you get these unusual scenarios so that's the other way of looking at so if we just backtrack a bit it doesn't tell us anything about price I'm telling the same thing about direction all it tells us is how much a market is moving in an intraday period as well as sometimes are the gaps so it's just a good indicator of that so why would we use that what's the point in that how useful is that it's not giving us any information on price well there's a few ways and I've done a I think I've done a kind of deep video about a farm for more ways but some examples are some ideas that we could use our targets so if we know that the average range and forgive our true dad my true or not the average expected range of a market is a hundred pips for example then when we're in the trade if the range then goes to a hundred pips and say when the trader goes our way now the rain is equal to 100 pips then we might not expect there to be much more than that because over the past 10 days that tends to be the likely range of the day so for us to be ingredients expects 150 pips is unlikely unless we're in a scenario where the range is breaking out some things are happening but if we're trading the normal expected range 100 pips is about right so we could use it as price targets for our trades on the long the short slide well we could use it as a filter we could use it and say hey I only want to be involved when the market is volatile or a market is volatile and screen markets for an ATR over a certain number so from trading whatever you're trading you could screen it for an ATR save trading stocks you could use a percentage or macey are you normalizing it across the stocks rather than just price and you can say okay only we'll trade stocks that I've got an ATR over two percent for example and so that would only brings your attention markets that are trading with a decent range that you consider useful for your strategy saving fuel trading in sto trading US dollar JPY say listen I'm not very good narrow kind of choppy markets I'm better when we've got a bit more aggression so then you could say well I'll only trade when the ATR is over a certain period so you're filtering out all the times when it's choppy and quiet and you're using it as a filter to say we're only going to get involved when the volatility is there because I know that's what I'm good at placing my trades or making some money from my trade I say and the final thing is entry zone so the flip of targets we could say ok we've got 100 pip range on the day is the average true range is the expected range of the day over a 10 day period that's pretty much what we're getting and so we could say right well actually if we get 200 pips maybe I'm going to look for a fade a counter trend trade back to the middle or whatever a target you may be because I think the markets gonna run out of steam there because over the past 10 days that's pretty much on average what it's done it's not gone 200 very often so I'm gonna 300 very often so we're about 100 point range I can say okay well that might be an area that I want to do some business and again it's got a few videos or we've talked about that how we integrate it perhaps within prior days levels key highs sorry key levels highs lows that kind of stuff and integrating the ATR as an additional a kind of thing to look at the process your trade so hopefully that's explained it in a little bit more detail like I say if you're interested in that formula go and kind of get on Google have a little dig around and see that and maybe put the range with the true range but you know to kind of get your head around it getting rid of Ray a true and average is a good start and then getting rid of the true is another good start so you know the average range and then once you grasp that the true just really adds an extra layer that it doesn't doesn't make that much difference when it comes down to where apart from in markets way and there's a lot of gaps going on so any guys that is the ATR made simple hope it's helped see the next one take care bye bye you

Channel: UKspreadbetting

Views: 16,276

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Keywords: atr indicator, average true range, average true range explained, how to use the atr, what is the atr, how to use atr indicator, average true range indicator, trading indicators, atr forex, atr trading strategy, how to use average true range indicator, trading indicators explained, atr forex trading strategy

Id: JtnrleCpEHI

Length: 11min 10sec (670 seconds)

Published: Thu May 23 2019