Learn how to maximize profits and minimize risk with the average true range trading strategy, using the ATR indicator to measure stop loss and profit targets. The strategy involves chart configuration with two windows, waiting for ATR indicator to break above 20 EMA, confirming with price action, entering long once the breakout candle has been developed, and setting stop loss below the breakout candle low. This strategy combines market volatility and price action for accurate trades. Additionally, don’t miss the previous video on bitcoin trading strategy.

Maximizing Profits and Minimizing Risk with the Average True Range Trading Strategy

Introduction

The world of trading can be complex and challenging without the right strategies. The key to success is to maximize profits while minimizing risks. In this article, we will explore the power of the Average True Range (ATR) indicator and how you can use it to achieve your trading goals. Our team at Power of Trading will guide you through the process of using the ATR indicator to measure stop loss placement and profit targets.

Step 1: Chart Setup Configuration

To use the ATR indicator effectively, you need to ensure that your chart is set up correctly. The Average True Range trading strategy requires a specific chart configuration with two windows. The first window should contain your favorite currency pair, and the second should contain the ATR indicator with the 20mm attached to it. Follow the guidelines to overlay the 20mm.

Step 2: Wait for ATR Indicator to Break Above 20 EMA

A breakout in the ATR indicator, reading above the 20mm, signifies higher volatility to come. With higher volatility comes trading opportunities and the potential for bigger profits. A break above the ATR line above the 20 EMA can indicate a new trend. The ATR trading strategy looks at not only the ATR volatility readings but also at the price action to confirm the increase in ATR volatility.

Step 3: Check the Price Chart

Now that the ATR line has broken above the 20 EMA, you need to check the price chart to ensure that the ATR breakout is followed by a price breakout. If you are looking to buy, you want to see a big bullish candle relative to the previous candles popping up on the chart. A break higher in volatility accompanied by a price break up means there is a high probability of the market moving in the same direction.

Step 4: Enter Long

Once the breakout candle has been developed, and depending on your preferred timeframe, you need to wait until the next candle breaks above the high of the breakout candle. A big, bold candle confirms the ATR breakout, and executing the trade at this point will increase your chances of success. You will learn that the ATR indicator will break several times above the 20mm, but it won’t be confirmed by the price action. In such cases, it’s better not to execute any trades.

Step 5: Set Take Profit Target to ATR Indicator Value

Determining your take profit target can be tricky, but with the help of the ATR indicator, you can be more confident in setting the target. The ATR reading can tell you how much on average the market is prone to move. If you conform to this reality, you can set your profit target accordingly. For instance, if the ATR volatility reading has a value of 16 pips, your profit target should be calculated 16 pips above the high of the breakout candle.

Step 6: Place Stop Loss Below Breakout Candle Low

As a trader, you must always protect your back, and that’s where the stop loss comes into play. Place your protective stop loss at the most logical point where a break below the breakout candle low invalidates your trade idea.

Conclusion

The ATR indicator provides an unorthodox approach to trading by combining market volatility and price action to provide you with the best trades possible. You can increase your chances of success by following the above steps. With the ability to forecast the market with a high degree of accuracy, the ATR indicator is a powerful tool in any trader’s arsenal.

Don’t forget to check out our previous video on Bitcoin and cryptocurrency trading, and never miss another update by pressing the bell icon on the YouTube app. Trading can be complex, but with the Average True Range trading strategy, you can maximize profits while minimizing risks.