Forex Average True Range Strategy
Maximizing your profits and minimizing risks captures the true essence of currency trading.
The Forex Average True Range strategy is designed to help you achieve just that.
You can successfully apply this trading strategy to intraday time frames, as well as to bigger time frames.
The basic idea behind this strategy is its willingness to execute trades when the market is ready to accelerate.
Consistency in trading can be achieved when we can spot how much price has moved on average, and this can be accomplished using the technical indicators that are embedded in this system.
The possibilities for this multipurpose strategy are never-ending, as are the yield potentials for the creative investor using it.
MetaTrader4 Indicators: tema_custom.ex4 (Inputs Variable Modified; MAPeriod=16), Moving Average.ex4 (Parameter Modified; Period=14, MA method=Exponential, Style=magenta), Average True Range.ex4 (Default Setting)
Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day, 1-Week, 1-Month
Recommended Trading Sessions: Any
Currency Pairs: Any pair
Buy Trade Example: GBP/USD (Sterling / US Dollar), H1 Chart
Long Entry Rules
Initiate a buy entry if the following indicator or chart pattern gets put display:
- If the magenta line of the 14 EMA Metatrader 4 forex indicator crosses below the yellow tema_custom indicator line as shown on Fig. 1.0, price is said to be driven to the upside i.e. a trigger to buy the designated forex pair.
- If the dodger blue line of the Average True Range indicator declines (posting lower volatility) sequel to a buy trigger in our initial trade setup rule (see Fig. 1.0), the overall market sentiment is said to be bullish, as such a buy trigger will suffice.
Stop Loss for Buy Entry: Place stop loss below the magenta support line.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit if the following rules or conditions takes precedence:
- If the magenta 14 EMA line intersects the yellow tema_custom indicator line while a bullish trend is ongoing (refer to Fig. 1.0), price is said to be making a bearish reversal, thus a signal to exit or take profit immediately.
- If the Average True Range indicator displays extremely low volatility, depicted by exceptionally low values or declining dodger blue Average True Range indicator line features during the course of a bullish trend, an exit or take profit is duly recommended.
Sell Entry Rules
Enter a sell order if the following holds true:
- If the magenta line of the 14 EMA forex indicator crosses above the yellow tema_custom indicator line as depicted on Fig. 1.1, the general market sentiment is said to be bearish i.e. a trigger to go short on the selected forex pair.
- If the dodger blue line of the Average True Range indicator surges (posting higher volatility) sequel to a sell trigger in our initial trade setup rule as exemplified on Fig. 1.1, bears are said to be gaining momentum, thus a signal to sell the currency pair of interest.
Stop Loss for Sell Entry: Place stop loss above the magenta resistance line.
Exit Strategy/Take Profit for Sell Entry
Exit or take profit if the following takes center stage:
- If the magenta 14 EMA line intersects the yellow tema_custom indicator line while a bearish trend is on course (check out Fig. 1.1), bears are said to be leaving the market increasingly, thus an exit or take profit stance is recommended.
- If the Average True Range indicator displays particularly low volatility, represented by extremely low values or declining dodger blue Average True Range indicator line features during the course of a bearish trend, it is pointing to a likely exit or take profit posture.
Sell Trade Example: GBP/USD (Sterling / US Dollar), H1 Chart
About The Forex Technical Indicators Used
The tema_custom or Triple Exponential Moving Average was developed by Patrick Mulloy and was first published in 1994.
It was designed to deal with the problem of lag experienced with trading the traditional EMAs or oscillators.
Trends can be spotted with little lag as a result of its ability to smoothen price fluctuations and filter volatility.
The 14 EMA is an exponential moving average that has its period set to 14 and reduces the lag by adding more weight to its recent price.
The Average True Range is a volatility indicator that gauges the strength of price action and is usually overlooked for clues on market direction.
During uptrends, the ATR indicator tends to display lower volatility while also posting higher volatility during downtrends.
The reason behind this ATR volatility phenomenon is given by the fear factor.
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