Lesson 28: What Is Average True Range (ATR)? How Do I Use ATR In Trading?

What Is Average True Range (ATR)? https://financial-spread-betting.com/course/ATR-spread-trading.html How Do I Use ATR In Trading? PLEASE SUPPORT US – LIKE AND SHARE THIS VIDEO IF YOU FOUND IT USEFUL.

So, we have got the DAX up here, let me clear off some of these drawing objects here. The first thing you notice that I have already got on my chart is volume, the low here I have got a volume to show me how much volume is traded during this time period and this is 5-minute chart. We can check that by just flicking there, yes, 5 minutes. So, each candle will show me 5 minutes.

Underneath it each volume stem is showing me how much volume is traded in that 5-minute period. The thing is with volume, is that when you are trading in index, you are basically getting a bit of a cumulative volume from the broker, the actual true volume comes from the futures market as we talked about before. These brokers are mirroring the actual market; the true volume comes from the futures market, but, if we looked at something like, let’s have a quick tesla for example, okay, now that volume is going to be true and it is going to show us how many shares are traded during that 5-minute time period and you can see how you know we have got a bit of a spike in volume and then it goes lower during lunch time, pushes back up and that is how the volume tends to go. We get volume spikes as we go through highs and go through lows but it is very important to see volume because it understands how many people are participating, if we pushed through a fresh low and no volume is coming in that is a little sign that is telling us hey you know what there is not a lot of participants in here maybe we need to be a little bit cautious about getting involved in a breakout.

Or volume is very, very low there is not a lot of participants during lunch time I am not going to get involved. Or volume has gone through the roof, it is the biggest volume we have had for the week, hey there is a lot of interest here let’s look and see if we can generate a trade opportunity.

So, always looking at volume is key.

Understanding the relationship between volume and price, that just comes with experience, as you start to look at the charts and looking at trade.

How does volume pick up? How does it decline? How does it contract? How does it expand? Then below that I have got average true range and I have skipped a bit because we were going to talk about moving averages, but we might as well talk about this as it is on my chart. Now, for me this is just showing me the range of this bar, what you can do and what a lot of traders do and what I will do is I will adjust it to give me a different time period. So, let’s double click it and then we can adjust it. At the moment, I have got a length of 1 but let’s say I wanted to see the average of volume over the time period. Now, don’t forget okay I have got a 5-minute chart here, so if I put in an average length of 10, what that is going to do and it is the same with all indicators, it is going to take 10 periods of the chart time frame I have got. So, I have got a 5-minute chart, so it is going to take 50 minutes and it is going to average the range over 50 minutes for each of those and it is going to give me a statistic. So, you can see how the average is smooth out and it picks up a little bit here as we start to, it takes a little bit of time obviously to represent in the indicator because it is an average, but as we start to put in a little bit more range in each of our candles, the average true range is going to pick up.

So, what that does is it starts to give us a picture on the volatility, you can see very large volatility during this Brexit situation here in late June and then as we are bouncing off and we are just getting the questions answered are we going to go to lows or not. Good volatility is similarly back at the beginning of the year when we started to push lower there was that good volatility and the ATR was lifting up but, do you know what the parameter you use is entirely up to you. I like to use 1 for purposes of just seeing what has gone on, I want to see what the range is like and then I can compare that to the prior days, so I can see hey you know what the last few days we have had pretty much no range after we had that big move to the downside.