Average True Range (ATR) Forex Strategy

The Average True Range (ATR) forex strategy is a currency trading strategy that leverages on price volatility and trend detection in delivering buy and sell signals.

The core of the strategy is built around the Average True Range (ATR) MT4 indicator and the buysellmagic02 custom indicator.

Chart Setup

MetaTrader4 Indicators: buysellmagic02.ex4 (default setting), ATR.ex4 (14) (default setting)

Preferred Time Frame(s): Any

Recommended Trading Sessions: Any

Currency Pairs: Majors and cross currency pairs

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Download the Average True Range (ATR) Forex Strategy

Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy position if the following indicator or chart patterns are on display:

  1. If the line of the ATR moves higher, it is signaling increasing volatility, as such traders will be anticipating rapid price moves. The ATR does not give us wind of the direction price is going to go, hence well confirm entry on “rule 2.”
  2. If the buysellmagic02 custom indicator forms a lime colored upward pointing arrow that is aligned below price bars, it is an indication that price is bullish i.e. a long entry.

Stop Loss for Buy Entry: Place stop loss below support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit on position(s) if the following rules or conditions are in place:

  1. Watch out for a declining ATR, which denotes decreasing volatility in the market and once established, it means bulls are opting out of their trades and we should watch out for the next trigger to exit or take profit on “rule 2.”
  2. If the buysellmagic02 custom indicator displays a red downward pointing arrow that is aligned above price bars, it signals an exit or take profit trigger.

Sell Entry Rules

Enter a sell in the market if the following holds true:

  1. If the line of the ATR moves higher, it is signaling increasing volatility, which means, traders should be wary of rapid price moves. Since the ATR does not say which direction price is heading, we’ll get the confirmation from “rule 2.”
  2. If the buysellmagic02 custom indicator forms a red downward pointing arrow that is aligned above price bars, it is a trigger to go short i.e. a sell.

Stop Loss for Sell Entry: Place stop loss above resistance.

Exit Strategy/Take Profit for Sell Entry:

Exit or take profit on position if the following holds sway:

  1. If the value of the ATR is declining, it is a proof that volatility is reducing, which means low volume and an obvious warning to exit or take profit.
  2. We can confirm our exit or take profit rule if the buysellmagic02 custom indicator forms a lime colored upward pointing arrow.

Fig. 1.1

Free Download

Download the Average True Range (ATR) Forex Strategy

About The Trading Indicators

The Average True Range (ATR) was developed by J. Welles Wilder, as an indicator that gauges volatility.

The ATR is unable to offer us clues on price direction, all it measures is volatility.

The ATR looks the way it does due to its smoothening using Moving average.

The BuysellMagic02 custom indicator on the other hand is a technical tool that forms red/lime arrow above or below price bars in defining bullish or bearish trends for the asset under scrutiny.

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