“INDICATOR OF THE DAY” - AVERAGE TRUE RANGE (ATR)
We often use [B]“Average True Range” /B in our daily analysis and place the indicator at the top of our list as an invaluable technical tool that provides compelling insights into market price action and potential reversals. The concept of the ATR is simple. The indicator calculates what the daily average true range of a specific security will be, based on a calculated average of the previous days’ ranges.
As applied to Usd/Cad today, we can see that the market had established a high by 1.2052 early on and began to pull back. If we were to utilize ATR as a means of projecting/forecasting where the daily low could be today, we would simply look at the daily ATR of 177 pips and subtract it from the current daily high of 1.2052 to give us a projected low of 1.1875. This suggests that the market should look to find a low on Thursday somewhere around 1.1975. We will often look to use ATR in this way, while also looking for other key levels that coincide with the projected ATR, to provide a solid technical confluence to base our trades off. Today, the other indicator is the 200-Day SMA by 1.1850. We have issued a buy recommendationat 1.1855.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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