Learn about the ATR breakout trading strategy, which is profitable and can be used for currency trading, stock trading, and crypto. The average true range (ATR) indicator is one of the best market volatility indicators that measures the volatility of price changes of any security or market. Traders can use the ATR indicator to understand the way a stock, forex, commodity, or cryptocurrency moves. The ATR trading strategy helps traders maximize profits and minimize risks. It is important to wait for confirmation of a price breakout after the ATR breakout, use protective stop-loss, and follow a risk-to-reward ratio of 1:3.

Simple and profitable ATR breakout trading strategy: An in-depth guide

Introduction

In this video, we are going to delve into a very simple yet profitable ATR (Average True Range) breakout trading strategy. The key to successful trading is to maximize profits while minimizing risk, and this trading strategy can help you achieve that. We will explain how to use the ATR indicator, provide practical examples, and define key terms to ensure a thorough understanding of this valuable tool.

The ATR Indicator

The ATR indicator is one of the best market volatility indicators available. It helps traders to understand how a security or market moves, including stocks, forex, commodities, and cryptocurrencies. The main idea behind the ATR trading strategy is to trade only when the market is ready to accelerate. By identifying how much the price moves on average, traders can achieve consistency in trading.

The ATR Period

Our team at Trader DNA has found, through extensive research, that a 10-period ATR is the perfect number to measure volatility, and it works best on the daily, 30-minute, and one-hour chart.

Support and Resistance with the ATR Indicator

When using the ATR indicator, traders look at classical support and resistance levels. For example, if the market consolidates in a contracting triangle, the expected break is a bullish one. When the price breaks, traders go long. However, it would be nice to have a confirmation or a reinforcement that the long trade is the right one. The ATR indicator gives a reinforcement that the break is for real.

Average True Range and Trading Strategy

The ATR indicator can be used to scalp or intraday trade. The following are the steps to follow for the best ATR trading strategy.

Step One: Chart Setup Configuration

The setup configuration requires two windows; the first window should contain your favorite market, combined with a 10-period Bollinger Band Stops indicator and a 10-period Exponential Moving Average. The second window should contain the 10-period ATR indicator with the 10-EMA attached to it.

Step Two: Wait for ATR to Break Above 10 EMA

The breakout in the 10-period ATR indicator reading above the 10-EMA indicates higher volatility to come. Higher volatility means more trading opportunities and bigger profits to be made.

Step Three: Check the Price Chart

To ensure the ATR breakout is followed by a price breakout, after the 10-period ATR line broke above the 10-EMA, the trader needs to check the price chart. In the case of a buy entry, the trader waits for the 10-period EMA to be above the Bollinger Band Stops indicator. Then, the Bollinger Band Stop indicator must change from a red state into a blue state.

Step Four: Enter Long Once We Break Above 10-Period EMA

The trader has to wait until the breakout candle has been developed, and then enter long once the candle closes above the high of the 10-period EMA. This is crucial to the success of the ATR trading strategy. The ATR indicator will break multiple times above the 10-EMA, but it won’t be confirmed by the price action, in which case, the trader should not execute any trades.

Step Five: Place Protective Stop Loss

In trading, one must always protect their back and hide the protective stop loss at the most logical point. In this case, the trader should exit their trades when the Bollinger Band Stop indicator switches over in the opposite direction to the trade they are in. The trader can set their stop loss at the previous big dot, previous swing high, or previous swing low, depending on their position. The minimum take profit target follows a risk-to-reward ratio of one is to three.

Step One: Wait for ATR Indicator to Break Above 10 EMA

The process for a sell trade is the same as a buy trade, but the trader waits for the 10-period EMA to be below the Bollinger Band Stops indicator, and then the Bollinger Band Stop indicator changes from a blue state into a red state.

Step Two: Check the Price Chart

The trader needs to check the price chart to ensure that the ATR breakout is followed by a price breakout.

Step Three: Enter Short Once We Break Below 10-Period EMA

Once the 10-period ATR line breaks below the 10-period EMA, the trader should enter a short position, for which they should wait until the breakout candle has been developed.

Conclusion

Incorporating the ATR indicator into your trading strategy can help you make better-informed decisions and increase your profits while minimizing risk. By following the steps outlined in this guide, traders can implement a practical and profitable trading strategy. Remember to always protect your back and employ a sound risk management strategy.