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Chapter 20, Part I. Intro to Breakouts and Fakeouts Page 6

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Average True Range continued

    Here are major rules for using it:

    1. If ATR reaches high numbers, it tells that volatility is high currently and its reducing is very probable. If, vice versa, ATR is close to low value, then volatility is low and we can count on its growth;

    2. If ATR shows a downward move and the market stands in consolidation then we can count on a breakout. ATR does not show the direction of the breakout, it just tells us that the market is building aup energy and that it is very probable that this breakout will be real;

    3. If you apply 5 and 13 periods for ATR, then it will be quite choppy and peak values are important here. So, if ATR has reached peak value as well as market shows new significant high or low, then it could lead to reversal;

    4. If market shows some breakout after long-term decreasing of ATR, then it could lead to significant move in direction of breakout.

    Here is how it looks:


    Chart #2 | Weekly EUR/USD and ATR (21)

    [​IMG]

    Here you can see all EUR/USD history, I’ve contracted this chart. You can see, that 200 pips range is extremely low period for 21 weeks, since this is 21-period ATR. Every time, when ATR reaches level below 200 pips, it leads to significant moves on the market. The direction of the move, you have to estimate using different tools of technical analysis. ATR just tell you that this move is probable and a potential breakout, if you see one, will likely be real.

    Still this indicator has some disadvantages. This is a type of indicator where interpreting it is more of an art than a science. The indicator itself is conservative and gives you a bit of a lagging picture. But still, it is very useful.
     
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 23, 2016
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