I have been watching ATR for NQ very closely. It seems when it is so low, like under 3.0 (this is on a 3 minute chart) that it just isn't worth it to enter a trade, even if my other criteria says to hit it. so I am considering no go on a trade if ATR is less than 3, also considering using ATR to decide on exit.... like if ATR 3-5 go for 6 points, 6-8 for for 8 points, over 8 go for 10... or something like that Opinions please?
I use ATR but not on NQ. I use it to help me determine stop loss as you suggest. But ATR is the AVERAGE true range....so that means that this price variation is the AVERAGE one would see in whatever time period you set the ATR to. So, why would you want to set the stop loss just barely beyond the ATR. Take a multiple of ATR so that if its hit you KNOW its not something that is within the AVERAGE variation of prices. Many people use 3-5 x ATR. I use a multiple from a recent low.
HMM, help me on this... maybe I am mis-reading your comment. so does that mean when ATR is strong, like 8.0... that I go for a 24 point target? that would be 3X...
First let me say I do not trade NQ so what I am offering is a suggested starting point for you to see how these ideas MAY work for your system. Second, I am going to assume you have no idea what ATR is so do not take it as if I am talking down to you. I just dont know what you do or do not know at this point. Most people use ATR as a designation of the amount of VOLATILITY of a particular instrument over a period of time. Notice in the chart below that I have a 3 min chart of QQQ and that I have used ATR time period of 20 (pink line) to show the volatility of the QQQ over 1 hr. Therefore, ATR (20) for QQQ will tell you the AVERAGE RANGE of prices over that 1 hr period. That varies as time goes on because as price volatility picks up so does the ATR (20). Notice that on July 7 the beginning of the day prices were at the bottom of my proposed trend channel and prcies were varying greatly as you can see the candles were quite tall and ATR (20) was high. As prices continued and then between 12:15 and 1:15 pm on July 7 the prices were very flat,..volatility went down and ATR (20) is dropping. Volatility then picked up the morning of July 10 from 9:30 - 10:00 am and ATR (20) did too. I am not aware of anyone using ATR as a DECIDING factor in taking a trade. Most people use it to help determine their STOP LOSS point. Most people advocate a 3-5x ATR. So lets say (as just an example) that you decide to go SHORT the QQQ on 2:00pm on July 10 (FIRST RED DOWN ARROW) because you saw a red candle after the price touched the upper trend line and you expect it to return to the green trend line. At that point ATR (20) = 0.06. So lets say you entered SHORT at say $138.75 (near close of the red candle). You could then set your stop loss at .06 x 3 = 0.18 higher (138.75 + 0.18 = $138.93. 5x .06 = .30 or $139.05.). Notice what happens to price later in the day as it goes higher. The first stop loss would have been hit but the second one would not at least not yet. Notice that if you entered short at a lower price your stop loss would likely have been hit because your ATR based stop loss is being based off your ENTRY price. I do not like that idea. I MUCH prefer to base my stop loss off of a recent high or low. In this case the recent high was 138.83 and .18 higher is 139.07. You now KNOW that if price goes to 139.07 it is because price has become more volatile and extended 3 x beyond what you would expect as just being within the AVERAGE range and recent high that could be retested. The SECOND ARROW is the next red candle after touching the upper trendline and now ATR (20) is .065. So lets say for example you enter and place a stop .065 x 3 above 138.99 or $139.195. By placing a stop JUST BARELY beyond ATR (20) like .08 above your ENTRY PRICE you are sure to get stopped out in my opinion. Probably also if you place it .08 above the high. You need a bit more wiggle room in my opinion. But my bias is based off of my experience. You will have to see what works for you. Thats why I use a multiple of ATR from a recent low or high. You can also vary the time period of the ATR and the multiple as you see fit. You really should examine your trades that you took and were frustrated where you got stopped out only to have price move in the intended direction and see what ATR multiple and time period would have helped keep you in the trade >95% of the time. This takes time and is different for everyone. Again, this is how I use ATR and is NOT meant to be an all knowing method as I think other people use it differently. But I do think most people use some similar method based off ATR. I hope this helps at least a little. Eganon
I hope this article helps you as well http://www.optimusfutures.com/trade...nge-stops-profit-targets-signal-confirmation/
Why do you need to "apply it to the NQ"? Eganon's very helpful post above should tell you most of what you need to know, I think - but I'm not clear why you need to do this. What's your objective for using the ATR? How do you intend it to benefit your trading? I'm asking simply because if you explain this, there might be something else someone (possibly even me, as an NQ trader myself) can say that might help you.
Well, I trade NQ so I want to see if it can be of benefit. I struggle somewhat on my stops and target for profit. Do I go 5 points on stop or 6 or 7? for profit, do I shoot for +7, 10, or even 15.... can I use ATR to figure out when to exit... etc...