Average True Range?
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    SanMiguel's Avatar
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    Default Average True Range?

    Is the ATR, the average size of a candle or is it the total range of the chart scale (eg movement in 1 hour or 1 day)? Have read up about it but am not clear.

    I'm trying to find a way of placing orders. For example, on a breakout I want a bullish candle and a confirmation candle and want to place my order aboce both of these so would add the average size of a candle x 2 for where to place the order.

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    rhodytrader's Avatar
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    ATR is the average hight to low range of each bar over the included period (usually 14). The actual calculation is a bit more complicated than that, but in the forex market that's what it generally works out to be.
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    Quote Originally Posted by rhodytrader View Post
    ATR is the average hight to low range of each bar over the included period (usually 14). The actual calculation is a bit more complicated than that, but in the forex market that's what it generally works out to be.
    Why not use the ATR of your timeline as a stop loss from your entry point then +/- some S&R lines that you can see or the S&R line with added in ATR factor?

    So, if you are trading daily, switch to 4 or 1 hr charts for the entry point and use the ATR of that lower chart as you added SL factor. Set SL to the S/R line and then add in the ATR say about 20 pips or 40-50 on volatile pairs?

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    Using a multiple of ATR to define one's stop point is something folks have definitely been doing for many years. The idea is that if the market moves by more than some multiple of its average range then conditions have changed.
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    SanMiguel's Avatar
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    Quote Originally Posted by rhodytrader View Post
    Using a multiple of ATR to define one's stop point is something folks have definitely been doing for many years. The idea is that if the market moves by more than some multiple of its average range then conditions have changed.
    I've been using the daily range/4 as a stop and trailing loss but sometimes find the trailing stop is stopped out, could this be too close?

    I've heard ATRx2 as a stop loss on some positions but this seems a pretty wide stop loss maybe only suitable for long range projections.

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    Quote Originally Posted by SanMiguel View Post
    I've been using the daily range/4 as a stop and trailing loss but sometimes find the trailing stop is stopped out, could this be too close?

    I've heard ATRx2 as a stop loss on some positions but this seems a pretty wide stop loss maybe only suitable for long range projections.
    If you're trading intraday you should probably be using ATR based on intraday bars, not on the daily bar.
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    Quote Originally Posted by rhodytrader View Post
    If you're trading intraday you should probably be using ATR based on intraday bars, not on the daily bar.
    Yeah, that fine but the daily range is daily only so I was using the DR/4 as a guide.
    Even on the ATR at say 4hr charts on the EURGBP, it reads 37. Now, that's a small amount for a SL probably only realistically possible if you get the order in right on the support/resistance line but when you wait for confirmation, you're usually 40 pips gone already...

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    Quote Originally Posted by SanMiguel View Post
    Yeah, that fine but the daily range is daily only so I was using the DR/4 as a guide.
    Daily ATR is the average daily range. The market can chop around a great deal within that range, or not chop around very much at all, which is why you should use intraday ATR readings for intraday trading. The ATR as stop strategy is based on the idea that if an ATR stop is broken it implies an unusual expansion in volatility, which might have meaning. Daily ATR won't catch that in time if you're trading intraday.
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    Default Using only today's bars

    Quote Originally Posted by rhodytrader View Post
    If you're trading intraday you should probably be using ATR based on intraday bars, not on the daily bar.
    That seems fine, basing the ATR on intraday bars. But since today's trading may be very different from yesterday's, would it not be advisable to restrict the bars to just today's bars and exclude those from previous days?

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    Quote Originally Posted by Puerto View Post
    That seems fine, basing the ATR on intraday bars. But since today's trading may be very different from yesterday's, would it not be advisable to restrict the bars to just today's bars and exclude those from previous days?
    Keep in mind that with the 24-hour action forex has no distict cuts between sessions. Volatility doesn't just move from X on Monday to Y on Tuesday. It flows there over the course of the roll from Mon into Tues. As such, ATR is picking up the shifts. And keep in mind that you can make ATR more or less sensitive to current conditions vs. prior ones by shortening or lengthening the look-back period.
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