Learn how to use the Average True Range (ATR) indicator to set stop-loss levels for trading. The ATR shows the range at a price level, allowing traders to adjust their stop-losses accordingly. By using the ATR indicator and moving averages, traders can make safer trades and reduce the likelihood of getting stopped out.

How to Use the ATR Indicator to Set Your Stop Losses and Stop Getting Stopped Out

Introduction: Feeling Fed up with Stop Hunting

If you have been stopped out of every single trade recently, you may be feeling frustrated and convinced the whole world is against you when it comes to stop loss. However, you are not alone, and in this article, we will show you how to use the ATR indicator to set your stop losses and help you stop losing trades.

Understanding ATR Indicator

Before we dive into how to use the ATR indicator, it’s essential to understand what it is. The average true range indicator takes the average price at a given moment and how much it can go up or down; it shows you a range at that price level. The standard built-in average, true range indicator displays this range in pips. For example, the average true range might be eight pips at a particular time, meaning the price can fluctuate at that moment, eight pips up or down.

Using ATR Indicator to Set Stop Losses

To use the ATR indicator to set stop losses, you need to adjust the settings on your trading platform. Let’s assume you are trading EUR/USD, and the current price is 1.1783. On your screen, click on “indicators” and type “ATR” into the built-ins. Click on the “average true range” and adjust the settings to make it more visible. Once set up, you can see the average true range at the current price of 1.178, which is 3.6 pips.

To set your stop loss, you should do 1.5 or 2x the ATR, which means you should stretch it to seven pips. This way, your stop-loss is less likely to get hit. With this setup, you can enter a long position with a seven-pip stop loss and a two-to-one risk-reward ratio, giving you a 14-pip cell at this level.

Using Better ATR Indicator

While the built-in ATR indicator is a useful tool, there’s a more advanced version that allows you to set your stop-loss more accurately. It is called the average true range trailing stops colored by H Potter. To use this indicator, go to “indicators,” type “average true range” in the public library, and select the “average true range trailing stops colored by H Potter.” Adjust the settings to make it clearer, and you’ll see an average true range on your price action.

You can now set your stop loss on, or above, the green line when it’s downtrending and below it when it’s uptrended. Set your long position and stop loss, take profit level, and use this as a trailing stop loss to increase your chance of success.

Adding Moving Averages

Adding moving averages to your trading setup provides a clearer picture of which direction the trend is moving. Type in “SMa” on your trading platform’s search bar to access smooth two moving averages. Click three times and change the first to 21, the second to 50, and the third to 200. Change the colors as desired, and you’ll have three different SMAs on your chart.

When you get into a trade, check for clear downtrends trading below all of the moving averages. If you’re above the moving averages, wait for a rejection on the 50 lines before taking a position. Use the ATR indicator as your trailing stop loss based on the trend direction.

Final Thoughts

Setting your stop-loss is crucial to proper risk-management when trading. The ATR indicator is an excellent tool for setting your stop losses, and the more advanced version allows you to set them with greater accuracy. By adding moving averages to your trading setup, you’ll have a clearer picture of market trends and can adjust your trades accordingly. Remember, always set a stop loss before entering a trade, and use the tools available to you to increase your chances of success.