Master The ATR Indicator (Most Useful Indicator On The PLANET!)

before we get totally started with today's video I want to talk about a very common problem that I hear from traders which is are you ever stopped out by a trade just to watch that trade go in the initial direction you thought it was going to take a look at the chart with me look at this here we have a push down below our EMA a little pullback a doji candle we're looking for short trades let's see what happens boom another doji and a close below now we go short where do we put our stop loss because we went short there our stop loss needs to be right above our swing high right that's what everyone says so we put a stop loss above the swing high let's see what the market does now and just like that you're stopped out on a potential good trade just to watch the market do what let's see what the market does here's the really devastating part here's our trade right we keep looking this trade would have eventually came down and hit exactly where you thought the market was going to go but instead you were stopped out but just a little bit before the market went in the direction you thought it was going to I have questions about this all the time from traders and this is something I initially struggled with at the beginning of my trading career I had devastating losses due to having my stop-loss too close not paying attention to market volatility and barely being stopped out before the market went exactly where I thought it was going to go now what have I told you that the indicator I'm gonna share with you in this video and show you how to use would have made this trade go a little more like this take a look here's the difference you see we have the same exact entry the same exact trade setup except on this chart we now have the way a rookie trader would place a stop loss against the way professional traders play stop-loss is using the indicator I'm going to show you how to use in this video right here let's take a look at what happens with the market now based on our new stops and targets as you can see using the rookie way of placing stops we have a stopped out trade right there you're losing money using the professional way we have a little more room because we placed a stop based on the volatility of the market using the indicator I'm going to share with you in this video and show you how to use because of that we were not stopped out of the trade and the market went on to in fact hit our target at a one point five to one risk reward turning this from a losing trade into a winning trade so as I said before I have been devastated by losses like this especially in the beginning of my trading career and although there's no way to not be stopped out ever of course you'll have winning and losing trades throughout your career there is a way to minimize the amount of times you get stopped out by a whipsaw in the market or because you're having your stop-loss is too close to structure and that could be causing stop hunters to hit them as well I'm going to show you how to avoid both of those using this indicator I'm going to show you in this video also towards the end of the video I'm going to show you a full strategy in different ways to use this indicator incorporate it into your trading to give yourself a better edge over the market this is by far my favorite indicator and the only indicator I use every single time place the trade so I'll be right back to share with you what it is how it works and how you can use it to improve your trading as well [Music] so what is this mysterious indicator that can help you avoid barely being stopped out before the market heads to your initial targets it is called the ATR or Average True Range indicator and I use it every single time I place a trade in order to help me with my stop loss placement and we're gonna discuss what the indicator is why you need it how to use it to play stop losses and a full strategy based around this indicator in just a second but first I want to show you the chart on the screen as you can see this chart on the screen has vertical red and green lines they represent wins and losses based on the strategy I'm going to teach you at the end of this video this strategy since 2018 on the dollar canada produced 31 opportunities eleven of those opportunities were losing trades 20 of those opportunities were winning trades meaning that this strategy since 2018 until today's date on the dollar canada produced a 65% winning percentage so make sure to stick around until the end of the video to learn this exact strategy that will help you when trading around false breakouts but right now let's dive into what is the ATR indicator and get started with the video ATR stands for Average True Range and what this indicator does is gives you the average of the last 14 candles printed on a specific time frame and currency pair it has an input so you can change that 14 to whatever number you want if you want the average of the last 10 candles you can do that if you want the average of the last five candles does not matter personally I keep the inputs exactly as they are stop and I look at the average of the last 14 candles on a specific currency pair and time frame now now that you know a little bit about what the indicator is why do we need it well because each currency pair has a different amount that it's going to move per candle for instance here on the pound New Zealand we currently have an ATR if you look at the top left of my screen I'll go ahead and circulate for you this is 122 pips so the pound New Zealand right now has an ATR or an average range of 122 pips that means the last 14 candles right now we're on the 4-hour chart on this four-hour chart average to be a hundred and twenty two pips let's move on to a different currency pair that doesn't move quite as much such as the Canada Swiss the Canada Swiss has an average right now the past fourteen candles only moved thirty four pips so the reason we need to know the average of the last fourteen candles or the amount of volatility this markets moving is because if we're gonna place a trade on the Canada Swiss let's say we do this right now we place a trade on the Canada Swiss and it looks something like this let's just say we go short for examples sake and you want to say let's say you're a beginning trader and you use a 10 pip above the entry candle as every single time you place a trade as your stop-loss so you would say okay here's my 10 pips 28 that would be 38 and I'd be let's say you're just looking for a one two one two keep it simple do you think that this 10 pip stop-loss is going to work just as well on the pound New Zealand as it does here on the Canada Swiss if the Canada Swiss is only moving at an average of 35 pips per candle and the pound New Zealand is moving at a hundred and twenty two pips every time a candles printed do you think you're gonna be stopped out a little more often here on the pound New Zealand yes you are and that's why we need to know the average true range of every single currency pair we're trading depending on the currency pair you're trading your stop-loss may need to be larger or smaller and in a very similar way it depends on the time frame as well if you have a 10 pip stop loss on the 15-minute time frame do you think that same 10 pip stop loss is going to work on the daily time frame when the daily chart has an average of 378 pips per candle while the 15 minute only has an average of 26 pips per candle and you can see that again by looking right up here of course the answer is no you need to know that average you have to know that and that's what I use every single time I place a stop loss and that's the reason I use the ATR indicator in order to place my stop losses is because every currency pair is going to have a different amount that it moves per candle every time frame has a slightly different amount it moves per candle so you need to incorporate that into your stop-loss in order to avoid those devastating losses where you barely get your stop-loss hit again there's no way to always avoid it but this will help to minimize the amount of times your stop-loss is hit barely and then the market goes in your favor the way that you originally planned the trade to go now that you know what the ATR is and why we need it let's break down how we can actually use this to place appropriate stop losses instead of placing a stop-loss like a rookie trader let's jump into that right now alright so now let's talk about how you can actually use the ATR indicator in order to help you place correct stop losses another reason you need an indicator that measures volatility like the ATR is because of different variations of volatility in the market as a whole for instance like what's been happening recently with the market volatility we've seen as of late do you think little 10 pip stop losses would have kept you from being stopped out you would have been torn up by these markets that have been happening recently if you would have not been using some type of volatility indicator for your stop losses and you may have been eaten up and this is how you can avoid that next time it's by using an indicator like the ATR and this is how you use an indicator like that in order to keep from being stopped out prematurely on trades during volatile markets or different currency pairs or different time frames what we're going to look at now is how to actually plot the ATR indicator on your chart I'm going to talk to you as if you're using trading view because it's the platform that I use so in trading view you go to indicators is one of the top ones but if you want to make it easy all you have to do is type in Average True Range it is at the top right here click it it will plot the average true range indicator on your chart now if we just scroll all the way over and hat and hover over nothing out here to the far right edge of the screen then you will see right here we have a number that number is 70 at the moment that means that currently on this market the ATR is 70 you can also see that if you look over here on the right-hand side of the screen right here at the side of the indicator I personally choose to look over here but it's completely up to you that number again is current ATR the current average true range of the dollar Canada on the four-hour chart is 70 pips so that means that out of the last fourteen candles printed 70 pips is the average now if you want to use this for back testing what you have to do is hover over whatever specific candle you want to look at the ATR for so for instance if I hover over this larger green candle that you can see my crosshairs over right now you can see that that Average True Range is 22 pips so if I hover over a candle the previous candle is eighteen point five pips the previous candle before that is eighteen point six bits hovering over a candle is how you use this indicator in back-testing but in order to use it to place your stop-loss the way that I personally use this indicator placing a stop-loss is if I had an entry right here let's say on this candle that I'm circling now that circle let's do that again right here this like hammer look-alike candle if I had an entry there instead of saying I got my entry now I'm gonna use a let's say tenth let's say I'm a rookie trader the difference being that I'm not and I would not do this but a rookie trader may say okay I'm gonna place a stop-loss 10 pips below this low so that would be 82 83 pips and that ends up being stopped out let's say we have a two-to-one risk reward again just keeping it simple that would end up being stopped outright the difference would be I would hover over my entry candle in order to actually use the ATR indicator to place a stop loss I would hover over my entry candle showing me that the dollar Canada on this candle has an ATR of 80 pips with that being the case I wouldn't be placing a 10 pip stop loss below my entry candle or below this swing low which is where my stop-loss is going right now that means if I had an 80 pip stop-loss I would use that value of 80 pips under my swing low or my entry candle depending on which one was lower the previous swing load though at the entry entry being right here is this entry candle so I would put a stop loss at 80 pips below that candle that means that we would have a stop loss of 153 pips yes you have a larger stop-loss but that again is the point you want to stay out of being whipsaw it out of the market because you have this tiny little stop-loss so with that being the case we now have a stop-loss that looks like that and a two-to-one risk reward would have been hid because we use the stop-loss correctly using the ATR indicator so what we would be looking for yet again is whatever your entry may be okay so let's say we have an entry on this big close above candle here we would look at this as our entry if whatever entry you're using is totally fine I'm just trying to show you how to place a stop loss using the ATR you would then want to hover over that candle when you're hovering over that candle look at the top left side of the screen I'll circle it for you the ATR is 67 right now so you would put a 67 pip stop-loss below the previous swing low that's exactly how I use the ATR indicator in order to place better stop losses that are less likely to be hit by highly volatile markets or by different currency pairs that have higher averages in terms of the candles they print or in different timeframes for instance the 15 versus the daily this is how I use it so the trade setup here if I have my profit-taking tool would look like this we talked about our big green candle as our entry the ATR of that candle is 68 pips 186 plus 68 it's two hundred and fifty four so we would have a two hundred and fifty four pip stop-loss and that's how you would set your stop again you set your targets accordingly it doesn't two-to-one risk reward whatever kind of target you want this is just me showing you how to use an ATR indicator in order to place stop losses to keep you out of these whips all's and keep you from being stopped hunted by placing your stop-loss a little further away or even a little closer at times depending on the volatility of a certain market at a certain time depending on the volatility of all markets at that time and on a certain timeframe you do so by looking at the average range of your entry candle using that amount that average true range amount below the swing low on a betrayed or above the swing high on a cell trait in order to maximize your ability to possibly win that trade instead of being stopped out for a loss so that's how you use the ATR to place an appropriate stop-loss that's how you use the ATR to place a stop loss like a professional trader instead of a rookie what I'm gonna do right now is show you a strategy an actual entry technique using the ATR indicator to help you take advantage of false breakouts and to give you a strategy that proved to have an edge over the dollar Canada from 2018 to now so let's briefly go over that strategy right now alright let's jump right into the strategy this is going to be a very brief explanation of the strategy I'm going to do a full tutorial on this strategy later on this week but right now let's talk about it this strategy is meant to capture false breakouts what is a false breakout false breakout looks something like this we look right here we have a swing low we have the market pushing below that swing low signaling the breakout traders you know it's time to go short let's go let's push this market down but the false part in this comes through and instead of pushing down the market just immediately reverses this is exactly what we're trying to capture with this strategy in order to understand the strategy you will need to know what a swing high is and a swing low because this is what we're looking for is breakouts of swing highs and lows for me just to give you a very brief explanation of swing highs and lows for this example a swing high is a high that was preceded by at least two lower highs and followed by at least two lower highs that would be a swing high a swing low would need to be preceded by two higher lows and have at least two higher lows after it so that would be a swing low that's what we're looking for initially with this strategy after we find a swing high and swing low we are placing your horizontal line at that swing high or low like we have right here and waiting on a break below that level in this case it would be a break above for a swing high in the case that we have on the screen in front of us though it would be a break of this swing low we get that break right here with our big red candle this is where the ATR comes into play on this break we have our conditions down we have the fact that we're looking for a break below a swing low for a bearish trade we know what a swing low is it's a low preceded by two higher lows and followed by two higher lows so we're waiting on a breakout of a level like that we have this breakout this breakout candle the candle from high down to low must be larger than the ATR of the breakout candle itself so it must be larger than the ATR of this candle that broke out so our breakout candle has an ATR of 79 pips what we would need to do is measure from the high to the low of this breakout candle and see if it is more than 79 pips it is 102 pips I need this candle to be between 180 R and 280 R in this case the ATR of our candle is roughly 80 pips so I would need this candle to be between 80 and 160 pips if it's more than 160 does not count if it's lower than 80 it does not count if it's between the two fits between 1 and 2 ATR then I use this candle as an entry for a false breakout situation what does that mean that means that the close of this candle if it meets all of those requirements I would have an entry at the close of this candle because it is a breakout candle from a previous swing low that is between 1 and 2 ATR it's not lower than one ATR and it's not above 2 ATR therefore I have my entry let's discuss stops and targets really quickly stops for me are going to be 180 are below the low of my entry candle on a by trade this would be a by trade so my stop is going to go 79 it's below the low of that entry candle let's do a trade setup with an actual position tool here we have our long trade our entry on that red candle I don't know why these things always turn out so huge I guess I'm zoomed in pretty far so we have our entry set we would now have a stop-loss placed 180 are below the swing low so we have 11 pips on that swing low at 79 pips that means that we would have a stop loss of 90 pips so let's put our stop falls at 90 pips following our rules and four targets on the dollar Canada what I just showed you at the beginning of this video I just used a one to one target that's what produced since 2018 right at a 65% winning percentage was having a one to one target but as you can see sometimes these false breakouts can provide a large a massive risk to reward ratio so that's the power of this strategy and that's a brief version of how to actually do it let's take a look at a couple of the trades over on the dollar canada back test and then i'll let you guys go but first off let's take a look at a couple of those so you can get a better idea of this strategy to make sure you completely understand it main goal here being that you are capable of actually testing this strategy yourself before I come out with the next video that explains it completely so hopefully this will give you an idea of exactly what you need to be testing for here we have our swing low looking left right here we have a breakout candle of that swing low right here what do we need to check for next next we need to know is this breakout candle between 1 & 2 ATR of this candle this candle has an ATR of 91 pips so we need to measure this candle from high to low from high to low on our entry candle we have a 110 pip candle that means this candle is between 1 & 2 ADR because it needs to be more than 90 and less than 180 so therefore we would be buying this breakout candle looking at it as a possible false breakout that would look something like this the buy trade being at the close of that breakout candle like so the ATR that candles 91 so we would have 91 plus 31 which will be at 122 pips stop-loss that did not get stopped out target again in this case was a 1 to 1 but as you can see potential for much greater targets I haven't finished all the testing but this is the strategy I'm currently working on using this ATR indicator as a possible indication of a false breakout go back and study those rules so you can go ahead and back test this yourself also if you're interested in some more forex training more advanced strategies sort of like this but even more advanced and even more capable strategies than we do have a full training program called the EAP training program in that program you'll receive all the strategies that I personally use on a daily basis you'll receive three to five of the actual trades I'm placing every single week and you'll also get priority email which means you can ask me any questions you have about Forex and I'll be there to help you about the course about the strategies in this program it is a mentorship program so I'm there for you every step of the way we currently have a couple of places available due to some recent graduates which I will show you now some of their comments and testimonials while you're reading through those also go ahead and make sure you're subscribed here to the trading channel make sure you click that like button for me to help out with the YouTube algorithm I'm gonna put a video somewhere on the screen you'll see it beside my face that I think would also be helpful to you on your trading journey make sure you follow in all of your rules in your trading plan make sure you're not risking too much in times like these put good use to your newly learned skill of understanding this ATR indicator in order to avoid being stopped out just by a little bit before hitting what could be massive targets I hope this has been helpful and I will talk to you in the next video Caeser

Channel: The Trading Channel

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Length: 22min 44sec (1364 seconds)

Published: Tue Apr 07 2020