JPNWV7 wrote:Just trying to figure out how to read this indicator. On one of my charts it says
70% of ATR(13) : 41 pips
What is the 41 pips? Profit? Stop/Loss?
I'm New to Forex Trading Just trying to learn.
41 pips is 70% from the current ATR value. ATR is the Average True Range indicator which measures volatility
. The ATR indicator is included in the standard set of Marketscope indicators.
How this value can be used (a few popular interpretations):
- To determine stop and limit levels.
Use the indicator value to determine the distance for your stop and limit levels. Such stops/limits will take into account the current market volatility because they will be based on the ATR indicator. Generally, a two times ATR value is used. That is, you should set the Multiplier parameter of the indicator to 2 and use the received value as the distance for your stop order.
Note that when the volatility is high, wider stops should be used in order to avoid execution of stops by a random market movement. When the volatility is low, tighter stops should be used in order to have better protection for trades. So the value of Multiplier should depend on market volatility.
- To determine the best position to buy/sell based on Support/Resistance levels. The ATR indicator can be used as a filter when trading with support/resistance levels. In this case you should:
For example, when the market hits the resistance level, the current ATR value for EUR/USD is 0.0110 (110 pips). You should enter the market at 20% ATR above the line:
- Determine the support and resistance levels. For example, the resistance level is at 1.4000.
- Then, watch for price movement. Once the price hits the resistance level, buy at 20% ATR above the line. The idea is to do not buy at the resistance level but above the level to avoid entering on false hitting of the level.
20% of ATR(14) = 110 pips * 0.2 = 22 pips
So, buy at 1.4022 level (1.4022 = 1.4000 (resistance level) + 22 pips)
Note that for this example you should set the Multiplier parameter of the indicator to 0.2.
See also Average True Range
Hope this will help.
Learning how to read indicators is more of an art than a science.