“INDICATOR OF THE DAY” - AVERAGE TRUE RANGE (ATR)
Eur/Aud: We often use “Average True Range” (ATR) 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 daily ranges. As applied to Eur/Aud today, we can see that the market had established a high by 1.7350 early on ahead of the latest sharp pullback. If we were to utilize ATR as a means of projecting the daily low, we would simply take the daily ATR of 175 pips and subtract it from the current daily high of 1.7350 to give us a projected low of 1.7175. However, we will also look for other key levels that coincide with the projected ATR to provide a solid technical confluence for a compelling counter-trend trade set-up. Today, the other indicator was the 2009 low by 1.7150. As such, we have established a long position by 1.7150 in anticipation of some decent corrective upside over the coming hours.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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