Trading strategies using ATR for stops and entries will be released early next year. While I don’t endorse using automated strategies, I think this is an exceptional strategy for visually identifying potential trade setups and then deciding whether the entry is valid or not.
Trading Strategies Using ATR for Stops and Entries Criteria
The THD strategy using the ATR for stops and entries highlights the entry. However, a higher timeframe should be used to decipher if the trade is valid for entry. For example, if the higher timeframe is trading down then you know not to take a long trade. Instead, you are using the higher timeframe to filter trade setups that occur on the lower timeframe. The only exception to this rule is if the higher timeframe is showing either overbought or oversold conditions. THD traders use the ADX to filter for overbought or oversold conditions.
Basically there are two trading strategies using ATR for stops and entries. They are:
Trend Trading Strategies Using ATR for Stops and Entries
- Identify the trend of the higher timeframe
- On the lower timeframe, the ATR must match the color of the higher timeframe
- Price must be close to the ATR indicator (plus sign)
Profit Potential is always at least double the risk on entry.
Counter Trend Trading Strategies Using ATR for Stops and Entries
- Higher timeframe makes an ADX magenta peak
- Look at color of ADX line
- ATR on lower timeframe must be the opposite color (ie if the ADX line is red, the ATR on lower timeframe must be blue)
- Price must retest the ATR indicator (preferably on lower volume)
Click on the chart below to see examples of both trend and counter trend trading strategies using the ATR for stops and entries. The plus sign is a trailing stop that is used with the red line being the offset of the ATR since price will normally test the ATR itself for either support or resistance.