ATR or Average True Range is an indicator that measures volatility, the more comprehensive introduction of ATR indicator can found at this link Average True Range (ATR) Definition.
Average True Range formula:
At first, it was difficult to understand the use of this indicator, even when every website and other multiple sources said that this is the greatest tool to measure volatility. But how to apply this in trading?
USING ATR INDICATOR AS ENTRY
When trying to go long(Buy), subtract the opening price of the candlestick with the ATR value and put the Buy Limit Order.
When trying to go short(Sell), add the opening price of the candlestick with the ATR value and put the Sell Limit Order.
The Profit Target and Stop loss can use the multiplication of the ATR value, e.g: 2 times the ATR value is normally used.
I've noticed that the market normally reverse/retract when the price reaches ATR value, it just like the market was run out of steam or just resting for a bit before continuing the action or even decided to reverse. This is when I found out the importance of using ATR in my trading setup.
In my previous post, I'm using Bollinger Band and Awesome Oscillator as the entry point while it was actually working, I am having difficulties to set the TP and SL. ATR Indicator solves this problem for me plus by using ATR I was able to enter the Market at the better price.
The Principle of trading is: BUY LOW AND SELL HIGH
The principle of a good trading Setup is:
1. When going long, make sure your entry price is low and when going short, make sure that your entry price is High.
2. Where to take profit and where to cut loss.