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How 1 indicator helped me catch a $700 move in only 10 minutes.
What exactly is ATR? Without getting too complicated, consider it simply as the high minus the low for a period. That period can be anything from a week, a day, a 1 hour bar, a 1 minute bar... you get the idea. Now to smooth out that number it's averaged, usually over the past 14 days, and there you have it, a quick breakdown of ATR. Most charting services or charting software includes ATR. So how can you use ATR? A couple of ways. First off, ATR can help to act as an early warning system, or maybe more accurately, a “what's going on” system. You see, ATR essentially gives you a readout of how much the price is fluxuating at any given time. When ATR bottoms out, it tends to signal the possibility that market action is about to heat up. Conversely, when it peaks, it tends to signal that things are about to quiet down. This really makes sense, because if you think about a market in a quiet trading range, the daily highs and lows usually aren't that wide. But as it breaks out of that channel and starts trending, the difference between the highs and lows usually start widening. And as a trending market starts to slow down, you'll see the highs and lows start to shrink. Where can you apply ATR? One of the greatest challenges in short term trading, or day trading is overcoming the urge to over trade. That's why in the stock market, if you look at the ATR on an intraday chart, you'll notice how ATR rises then peaks at around 10-10:30. Things then quiet down through lunch, then you can see ATR start rising again anywhere from 2pm – 3 pm. Seeing this on your charts, can help remind you that setups that are occurring during the quiet times are probably not the real thing. You can even apply this same idea on longer term charts in any market to give you a relative idea as to where things stand. In forex, you can study ATR and see where it tends to bottom out. This can help you pinpoint the time frames where it would be ideal for you to focus your efforts on. Now I'll now show you how I used ATR allowed me to catch a $700 trade in 10 minutes?
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