The ATR indicator is one of the base in most trading platforms. Someone says that on its basis it is possible to build a Forex win-win strategy, on one of the top investment blogs the article has the name “Indicator, without which there is nowhere”. Our opinion is somewhat different: there are no win-win strategies and ideal indicators. It all depends on how the trader can use the tool and how it compares technical signals with fundamental analysis.
Below we will offer you an interesting strategy based on the modified indicator SL_ATR. The indicator is well-known, but if you need a template, write about it in the comments and we will send it to you for free.
ATR indicator: essence and strategy based on it
Average true range – this is the abbreviation of the ATR indicator, created by Welles Wilder. It is an indicator of market volatility, the purpose of which is to set exact stop-loss levels (as confirmed by the transaction statistics). The general interpretation of its signals is similar to the values of oscillators – the higher its value, the higher the probability of a trend reversal. The true range is the single largest of the following:
- the difference between the current maximum and minimum price;
- the difference between the previous closing price and the current maximum value;
- the difference between the previous closing price and the current minimum value.
The ATR indicator is the moving average of the true range. More deeply into the calculation formula is not worth it. The most frequent use of the indicator is a filter to the main trend instrument. SL_ATR is a modified version that builds preferred stop loss zones for short and long positions.
- SL_ATR indicator period is 14;
- Timeframe – 1 day;
- Asset – EUR / USD, GBP / USD.
The strategy is quite non-standard in comparison with the usual, already described by us earlier. There are no hard conditions per se for a long or short position. Trading is conducted simultaneously in two directions: set pending BuyStop orders to the value of the last arrow RED, SellStop – to the value of the last arrow BLUE and add a fixed stop of 30 points.
Market exit conditions:
- If the candle is closed above the opening price of the transaction by 30 points, close 50% and move the safety order to the breakeven level. For the second 50% of the position, we set a trailing with a step of 30-70 points.
- If the current candle has already earned about 100 points, we do the same, only set the trailing at a distance of 10-30 points.
- If the transaction is closed by a stop, immediately change the direction of the transaction and insure it with a stop of 60 points. We close it either by take profit with a length of 100 points or as soon as the candle closes.
As the practice of working with the ATR indicator shows (link to a trading advisor using it here), if the stop is triggered, the unfolded candle will be more than 30 points, that is, the loss will be completely covered. This strategy has two variants of development of events, therefore we recommend testing it first on a demo account for a better understanding of entry and exit points. The strategy also works on other pairs, but an individual selection of the foot length and trailing depending on the average range of daily volatility of the pair is needed. There are questions – ask them in the comments!