Day trading Dow using ATR for 122 points per contract this morning.  The 45 minute chart showed that price was at a congestion dot and the ATR should be retested for support.  Additionally, the ADX line was blue and a magenta peak formed also indicating that price should retrace to the ATR on the 45 minute chart.

Day Trading Dow Using ATR Strategy

The 3 minute confirmed the setup on the 45 minute chart because the ATR flipped from blue to red.  Then price retested the ATR and did not break it.  The fact that volume divergence showed buyers decreasing was icing on the cake.  The entry was 16617 and the risk on entry was a total of ten ticks per contract.

Day Trading Dow Using ATR for 122 PointsAs you can see from the chart, the solid red line moves down with price.  This stop is used if price closes above it or flips the ATR from red to blue.  The secondary stop is an aggressive stop that kicks in once a pre-defined number of ticks has been achieved.  The yellow stop will then begin to move down with price.  This stop is the aggressive stop and is used if price touches it.  In this case, the yellow stop kicks in and the trade is exited at 16495.  The resulting gain is 122 ticks per contract.

The risk to reward on this trade was 1 : 12.  This is far above the minimum that we anticipate (1 dollar of risk for every 2 dollars of profit).  Trades like this don’t come every day but when they do it is very important that we take advantage of them because these trades are the ones that allow us to even out our overall actual risk to reward.  Sometimes we may only get 1:1, other times could be less but when we are able to stay with trades like these, it averages in our favor, which is why it is so important to take advantage and maximize the rewards.