How To Use The Average True Range For Beginners (MUST KNOW SECRETS)

what is up traders today we're talking all about the atr indicator this is an indicator that i have on my chart every single time i place a trade and what i'm going to do today is break down one what the atr indicator is two how do you read it correctly and three i'm going to go through three different ways you can use it for creating objective rules in a strategy for yourself that can help to increase your winning percentage and overall create a more dynamic strategy you can start using in trading let me tell you what i mean by how to read this indicator correctly i get the question all the time stephen what does this number mean does this mean that your new zealand 4-hour chart has a 452 pip a t-r or is it a 45-pip atr or is it a 4.5 pip atr so that's one of the things we're going to go over included with that we went over the other two as well so stick around for that if it sounds interesting go ahead and click that like button click subscribe if you're not already subscribed because we come out with content like this each and every week and i'll see you guys after the intro and disclaimer welcome back traders and let's go ahead and dive right in first off with what is the atr indicator very simply put the atr indicator is an indicator that should be on any trading platform you decide to use and it simply measures the average of the last 14 candles that were printed on a chart so in this case we have an atr of 45 pips on the euro new zealand that means out of the last 14 candles printed the average was 45 pips now i'm not gonna go over that again because it's a very simple concept to understand but now let's talk about how you would use this let me give you an example so if let's say the last 14 candles here and i don't know if this is going to be exactly 14 but bear with me was a 100 pip average okay and then the last 14 candles here again have no idea if that's 14 candles was 20 pips on average if that is the case do you think you should be using the same stop loss and the same targets when the market's moving at an average of 100 pips as to when it's moving 20 pips hopefully you said no you see we need to be dynamic with our stops and targets and we need that dynamic aspect of our trading to be based on the volatility of the currency pair the time frame and the particular market conditions that are happening right now if we have market conditions where the market's moving at 100 pips over the average every candle out of that last 14 candles then our stop loss needs to be a little bit wider that way we don't get stopped out by the market doing whip sauce like we've all seen before and if we have a very small stop loss or a very small atr then what we can do is shrink our stop loss to a smaller amount to increase our possible risk to reward ratio or reward to risk however you want to say it so that's the reason we need to know what the atr of any specific market time frame and the market conditions the market tells us so the atr indicator tells us what we need to know about all of that in order to be dynamic with our stops and targets that's one of the main ways i use the atr indicator is by letting this indicator tell me what the average market movement is at a specific time on a specific currency pair and on a specific time frame so now that we have that under control let's zoom in up here to the atr itself and talk about how to read this indicator we're on the same page we were at the intro so right here zero point zero zero four five five can be confusing i get it because right now 455 is what you see on this indicator but the way we read the atr is the exact same way we read a currency pair so if we had a currency pair with a value which this would be very hard pressed to find but you had a currency pair with a value like this then how would you read it well we know that the fourth decimal point right here is the decimal point the fourth one one two three four is equal to one pip we don't even count the fifth decimal so every time you see the atr indicator i want you to remember that we only count over to the fourth decimal that fourth decimal is our ones so in this case what would it be five the third decimal is our tens so in this case what would it be forty and then we have zeros everywhere else so you tell me what is the atr right now this would be a 45 pip atr this will be the case on every currency pair except currency pairs with jpy they will always just need to be discounted on that last number and we need to count four decimals to equal one pip third decimal is your tens so again this would be a 45 pip atr now let's go to a yen pair and break those down really quickly cad yen will be fine in this case so on the cad in what we have is 0.165 again another confusing situation right you have to ask yourself is this 165 pips well if we break it down j p y pairs have a one and in terms of decimal spots here's our decimal the ones are on the second decimal so one two we discount the third number now what we have is our ones is going to be six our tens is going to be one and we have our zero this would be our one hundreds if there was a number here but instead what is this in terms of the atr amount 16 pips if you need any help with that be sure to rewind the video and watch it again it's not a super complicated process but i can see how that might have gotten a little bit confusing so go back and re-watch this if you have to a couple of times to figure this part of this indicator out correctly because it's a huge role in my own personal trading and i really think that this indicator can play a huge role in your trading success as well so now that we have what the atr indicator is and how we read it correctly let's go over a couple of ways you can use the atr indicator as an objective rule in your strategies to give you more dynamic strategies that win more lose less and keep you in the markets longer okay so the first way of using this as an objective rule should be pretty common and you probably have heard of it before and that is to use the atr for your stop and target placement so in this case right here let's say i saw this market trading above the 20 let's put the 50 on above the 50 ema and i think okay we're trading by the 50 ema we've made new highs i expect this to be a flag pattern situation and this market to break out okay if that's the case then what i need to do is go ahead and get a position tool or use a roller you know if you don't have a position tool on your platform you can just use the ruler tool and ask yourself where is an area i want to get out of this market well for me it would be below the swing low we've seen buying pressure from here pushing the market up if we get below this swing low then i do not want to be in this trade anymore well if that's the case how far below that swing low do you think this is enough just right below it well how many times have you seen a market come down and do something like this put a wick in and then stop you out and go back the other direction immediately afterwards i know i've seen that a lot which is one of the reasons i started using the atr indicator for stops and targets so in this case a way i would use the atr indicator is by putting a horizontal line at the level i didn't want price to go below so if i'm telling myself if price price gets below this wig i want to be out of the trade then what i do now is use the atr value to go below that wick so that if i get a long wick it should not stop me out the atr value right now if we look up in the top left hand side of the screen is right at what 16 pips so what i would do right now down to that wick is about 18 pips i would add 16 to 18 which is what 34. so what i would do is pull my position tool down to 34 or take my ruler tool out add those two together if you would if you just have a ruler get a ruler tool here we have 17 18 pips plus our 16 pip atr means 34 go down to 34 put a horizontal line at 34. so now i know my stop-loss position based on the volatility of the current market and time frame so instead of being a trader that just goes around putting a stop loss 10 to 20 pips below previous structure levels which is what a lot of traders do and a lot of the reason traders get stopped out by wix is because they do that now i have a dynamic way to set my stop loss based on the volatility of the current market time frame and market conditions which is one of the most useful ways to use the atr indicator and once i have that set i can set my stop my target back up at previous resistance or i can use a two atr is the target making the target 32 34 pips giving me about a one to one you can do it two to one three to one just based on your stop loss targets are completely up to you the main way i like to use the atr indicator is for my stop-loss placement to keep me from getting wicked out of trades if we have a market that pushes down with a wick i'm now safe for that market pushing back up immediately afterwards that's the first way i use the atr indicator to create a dynamic rule for stop losses and targets in my trading let's talk about a couple of other different ways you can use atr as an indication of what the market might do next or as an objective rule to a strategy as we just talked about let's say we're still on the same pair and i'm expecting this market to break out of this little flag pattern wedge pattern whatever you want to call it right here well if that's the case do i want to trade the breakout if we barely get a close above this level well your answer can be yes or no in this case but for me i wouldn't necessarily want to trade if it was just barely closing above that level right if we had a market that was like this and a candle like this i wouldn't want to be placing a buy trade right there because we have a pretty likely scenario where the market could still head lower and even still stay in this flag pattern if that was the case and then push up and i don't want it to stop me out so what would i wait on another way you can use the atr is to tell you when momentum comes into the market so at times that momentum comes into the market the likely scenario of the atr showing you that momentum is that you'll see a candle print that is bigger than the atr currently is so right now remember we have that 16 pip atr so what i would want to see is a candle printed that is over 16 pips this type of candle which shows me momentum coming into the market during a breakout trade that's the second way i like to use the atr indicator in order to have an objective rule for a strategy is on breakouts i want my breakout candle to be at least one atr or more let's do that one more time for this flag pattern breakout or any type of breakout strategy i like to see momentum on my breakouts an objective way to qualify momentum is to use the atr indicator if we are above 16 pips which is what the atr is right now or above one times atr then that tells me that we have momentum we have to be at or above one atr with the candle itself so what the way you would do that let me explain this is once the candle was printed you would grab a ruler measure the candle if the candle's more than 16 pips then you know that candle is showing you momentum to the bullish side giving you a likely scenario where this breakout continues and hopefully hits your targets a little bit higher that is the second way i use the atr indicator as an objective rule for a strategy let's move on to number three now which number three actually includes the uh rsi indicator so on the rsi indicator something i would look for is an overbought or an oversold market right and after that overbought or oversold market i would want or maybe a market with divergence let's do that because that's a more realistic approach so let's say i want to see some type of divergence in in the rsi if that's the case that means divergence simply put is the market making lower lows the rsi indicator making higher lows we have that right here so if i'm looking for divergence on an oversold market the next thing i want to see again is momentum so we have our rsi divergence rsi making higher lows we have price making what lower lows if that's the case we have rsi divergence i would not want to buy this until i see a momentum candle this is a way you could use a rule using the atr indicator and how would i qualify that momentum well i need to see a candle that's bigger than one atr if i'm hovering over this candle looking your top left i'll put an arrow towards it right now we're at 0.26 meaning we have a 26 pip atr so if we have a 26 pip atr on that candle then i want to check to see is that candle more than 26 pips from low to high and from low to high we're 43 pips so obviously this is showing me a lot of bullish momentum from an oversold market after rsi divergence it can be a great qualification to put you in a trade as an entry signal that's the third way i like to use it as you can see in this specific case it actually worked out really well and the market went up that won't always happen nothing wins 100 of the time but this is something that can help you gain more accuracy help you keep from getting stopped out as much and overall help you become a better trader if you can master the rsi indicator i hope this was everything you need in order to do that if you missed anything from the video just rewind it and i'm sure after a few times watching this video you will have this indicator mastered i hope that video was helpful if so make sure you click that like button make sure you're subscribed if you're interested in any kind of more advanced training or if you would like to work more closely with me on improving your trading then we do have the eap training program listed below and i actually opened up a brand new case study group this month for some new content we have in the eap so if you'd like to join that case study group again click the link in the description to learn more if not that's totally fine too make sure you're subscribed to be alerted about all this awesome content we come out with for free each and every week and i'll talk to you guys in the next video see you soon

Channel: The Trading Channel

Views: 98,674

Rating: 4.9457107 out of 5

Keywords: forex trading, average true range, atr indicator, day trading, learn to trade, stock market, intraday strategy, trading strategies, make money, intraday trading strategies, how to trade forex, intraday trading, average true range forex, atr forex, average true range explained, atr trading strategy, forex trader, price action trading, forex trading live, forex trading for beginners, day trading for beginners, how to use average true range

Id: 1dUx8c62x4s

Length: 14min 56sec (896 seconds)

Published: Tue Oct 13 2020