ATR - How do we use it?

[firepip]

We all know about average true range. I've read all I could find about it... but I cant't understand how do we exactly use it...
How do I calculate a 3XATR? And how do i set a stop loss based on that result?

Best regard, Lucian

[Coral Shores]

Originally Posted by firepip

We all know about average true range. I've read all I could find about it... but I cant't understand how do we exactly use it...
How do I calculate a 3XATR? And how do i set a stop loss based on that result?

Best regard, Lucian

Usually in my experience some traders set their stops outside the ATR.

This is best used with a longer term system that seeks 50-300 pips.

Note though that there is an ATR for the hourly, daily, 5 min, etc timeframes(s).

As an example today you could bring up a DAILY chart and plot an ATR indicator on it. As you can see the ATR is about 97 pips. Therefore if you took a longer term trade (you are looking at a daily chart remember) you stop would be 97 PIPs away.

[navlani]

Originally Posted by firepip

We all know about average true range. I've read all I could find about it... but I cant't understand how do we exactly use it...
How do I calculate a 3XATR? And how do i set a stop loss based on that result?

Best regard, Lucian

Hi firepip

Calculation of the ATR is as follows:

1. Take the OHLC data for the time frame that you are using.
For example, I use daily charts, so lets assume we take Daily OHLC data from any platform.

2. Decide what period ATR you plan to use.
I use a 20-period ATR, so I calculate the True Range (TR) for the first 20 bars.
TR = Maximum of (High - Low), (High - Previous Day's Close), or (Previous Day's Close - Low)
*The logic behind (H-PDC) or (PDC-L) is to account markets gapping from the previous bar. Thus, in that case, either of the above will give a TR and not (H-L).
*For the first bar, TR = (H-L), since there is no PDC.

3. Now, the Average of the TR of these first 20 periods will give you the Average True Range (ATR) for the 20th bar.
So, we finally come to the calculation of the first ATR.

4. The rest of the ATRs would be an Exponentional Average of the consecutive TRs.
To calculate this, simply multiply the previous ATR*19, add the current TR to it and divide the whole thing by 20.
Thus, ATR = ((Previous ATR*19)+TR)/20
*Note that the first ATR is a Simple Average of the first 20 TRs, since there is no previous ATR.

Try working on this bro.

I'll keep you posted if you need help.

[stockwet]

This page may be of help to you.

http://www.incrediblecharts.com/tech...true_range.htm