The video discusses the importance of using the Average True Range (ATR) technical indicator in trading. ATR measures volatility and can be used to determine strength of a trend and to enter on pullbacks. The default period used for ATR is 14, and the indicator appears at the bottom of trading screens. The video includes real-life examples of ATR in action and a downloadable cheat sheet is offered.

The Ultimate Technical Indicator for Rookie Traders: The ATR

Introduction: The Importance of the ATR in Trading

The average true range or the ATR is a technical indicator that tells traders how volatile the market is. While some traders prefer to rely solely on price action, support and resistance levels, and other fundamental analysis techniques, the ATR is an essential tool that rookie traders must learn to use. In this article, we’ll explore the basics of the ATR, how it works and how to use it effectively in trading.

What is the ATR?

In simple terms, the ATR is the average range over a period of certain candles. This means that it shows traders the high and low of the price in a particular time period, and the difference between the two is the range for that specific candle. By averaging out these ranges over a predetermined number of periods, traders can get a clearer picture of market volatility.

How to Use the ATR: Real-Life Examples

Entering on a Pullback

One of the main ways to use the ATR is to enter on a pullback. It’s a popular technique for trend-followers who want to avoid entering trades at the top or bottom of a trend. For example, if the ATR is at 15 pips, waiting for a 2 ATR pullback (i.e., a 30 pip pullback) before entering a trade is a common practice that many traders use in conjunction with other technical analysis techniques.

Using a Trailing Stop-Loss

Another effective way to use the ATR is to set a trailing stop-loss. Trailing stop-losses are a popular risk management technique that help traders limit their losses while staying in the trade to maximize gains. By setting a stop-loss at a certain distance from the current price, traders can ensure they exit the trade if the market moves against them beyond this level. Adding an ATR multiple to the stop-loss level helps to adjust the stop-loss as the market moves to account for volatility.

Identifying Trend Strength

The ATR can also be used to determine the strength of a trend. If the ATR is increasing, it could imply a strong trend in the market. Conversely, a falling or low ATR may indicate that the market is entering consolidation mode and sitting in a tight range for some time. By using the ATR alongside other technical analysis techniques, traders can get a better understanding of the market trend and make informed trading decisions accordingly.

Conclusion: Download the ATR Cheat Sheet

In conclusion, regardless of whether you’re an experienced trader or just starting, utilizing the ATR can help you make more informed trading decisions. From determining the strength of a trend to entering on pullbacks and using trailing stop-losses, the ATR is a versatile tool that belongs in every trader’s toolbox. Don’t forget to download the ATR cheat sheet for a handy reference guide that’ll help you get started quickly and easily.