5.6 Trading Average True Range (ATR) instructions

http://www.capexforextrading.com/forex-technical-indicators The average true range is solely used to measure volatility. It is because of this that it can be used in two ways: 1. Low volatility measurements can be used to get into a new trend 2. We can use ATR to set a stop loss relative to the currency pair's specific volatility. When getting into a new trend the first factor we need to consider is low volatility which is shown by the Average true range. When trading the 1 hour time frame a good indication level from low volatility is the 0.0006 level. Once we have a reading of that level we have to use 2 simple moving averages for a further confirmation - they are 8 and 21 SMA. Now, we are looking for prices to be above the 8 SMA and we also need both averages to cross-over. Once this is complete, we have a good signal. For the final confirmation we reference the H4 time frame to see if prices are above 8 SMA and if they have both crossed over. If this is true, we have a confirmed signal for entry. When using the Average true range to set a stop loss we always set the stop loss 2 ATRs away from our entry price. So, if the ATR reading was 0.0014, we multiply it by 2 to get 0.0028. We then set the stop loss 28 pips away from our entry price. This is the best way to set a stop loss because it is relative to the currency pair's volatility. This also gives the prices enough room to move around and not stop out early or too late.