Today’s video provides a comprehensive review of how to use Average True Range (ATR). It includes the following:
- How to calculate it
- Why it’s a volatility gauge reflecting the stock’s personality
- How to use it for triggers, stops, and targets
Average True Range (ATR) Notes
Calculation: Last 14 bars – capture the average size per bar. It considers gaps as well. The range over the day.
Stock’s Personality: Low-volatility, low-priced stocks have a small ATR. High-volatility, high-priced stocks have a high ATR
Volatility Indicator: Rise as stocks fall & falls as stocks rise.
Targeting: 1 ATR
$50 stock with an ATR of $2.50. Rise 3 days in a row.
Buffer (stop & trigger)
Entry – Trigger – Buy above prior day’s high ($52). How far above prior day’s high?
- Wait to rise 1 ATR above prior day’s high – too slow b/c it already ran a bunch.
- $52, Buy at $54 (1 ATR above)
- Wait to rise 1 penny above prior day’s high – too quick b/c not enough confirmation
- $52, Buy at $52.01
- Use a % of ATR such as 10%.
- $52, Buy at $52.20 (10% of ATR above prior day’s high)
Stop Loss – Sell below support. How far below support?
A)Wait to fall 1 ATR below support – maybe that’s too far.
A) Sell stop at $48
B) Exit if stock falls 1 penny below support – maybe too close.
A) Sell stop at $49.99
C) Use a % of ATR such as 10%
A) Support at $50.
B) Sell stop $49.80
ATR is $2.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
