Share:

Hello traders! This week’s newsletter comes to you from sunny Dallas, Texas (again), where summer is still hanging on tight. The other thing that has been hanging on tight is the low volatility that is pretty common in the late summer months. Here’s to hoping that the volatility will return with the oncoming cooler weather!

Speaking of volatility, one of the things that I like to check on a weekly basis is the daily ATR (Average True Range) of the 20 or so currency pairs that I like to focus on. This can often help me to determine if I’m being too optimistic with some of my price targets, or even when I’m being too conservative. Let’s break these down, shall we?

As of the time of this writing, the ATR on the major pairs that I trade are:

EURUSD 72 pips GBPUSD 116 pips
AUDUSD 67 pips NZDUSD 75 pips
USDJPY 95 pips USDCAD 92 pips

And the ATR on a few cross pairs for discussions sake are:

EURJPY 80 pips EURGBP 65 pips
GBPJPY 148 pips AUDJPY 63 pips
EURCAD 91 pips GBPCAD 139 pips

The first thing I look to the ATR for is what pairs to “concentrate” on. I would prefer to get into trades on pairs that have higher ATRs than lower; very generally speaking, your winners should be larger with more volatile pairs. While your stops are higher as well, I can accept the added risk in my plan. I will also compare any new pair that I check vs. the EURUSD pair. Because the EURUSD usually has the tightest spread/most liquidity, any new pair that I consider must have more potential reward/ATR than the EURUSD. When checking the EURGBP, for example, because its ATR is less than the EURUSD, I would prefer to wait for a EURUSD trade than jump into the slower EURGBP.

Because I primarily look to swing trade in the spot forex market, a pure snapshot of the ATRs isn’t the only thing that I look at. What I’m looking at also includes the TREND of the ATR and also the trend of the pair.

gbpjpy

For example, in this GBPJPY chart, you can see in the June area that the pair is clearly trending lower, while the ATR is increasing at the same time. This would lead me to “let my winners run” much more than a declining ATR with a listless, non-trending market-such as in the March time frame.

Sideways vs. Trending Markets

In your trading plan, you should have some written out strategies for trending vs. sideways markets, specifically on how to manage your winning trades.

In sideways markets, for example, you could use the all in/all out for your trades. (This means entering your entire position at one price, then exiting the entire position at a predetermined profit target, often 3x what your original risk was.)

In a trending market, there are numerous ways to manage the winners. A few examples: First, take off half of your position at a price level which is 3x your stop, your second half at 5x or more. Second, take off half of your position at a price level which is 3x your stop, then use whichever technical analysis technique to let your winner run without a hard target. Last and certainly not least, you can even consider adding to a winning position until a significant enough retracement takes you out of the trade.

So there you have it. A couple of different ways to use the ATR, plus a couple of trade management rules to boot! Again, cross your fingers our ATRs run up like they traditionally do in the early fall, before the typical end of year slow down occurs.

Learn to Trade Now

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Editors’ Picks

EUR/USD advances toward 1.0750 on renewed US Dollar selling

EUR/USD advances toward 1.0750 on renewed US Dollar selling

EUR/USD is extending its mild recovery toward 1.0750 early Europe on Tuesday. Risk flows remain and exert additional downside pressure on the US Dollar while Euro traders reposition ahead of Sunday's French election. Mid-tier US data and Fedspeak stay in focus.

EUR/USD News

GBP/USD recovers to 1.2700 as US Dollar weakness extends

GBP/USD recovers to 1.2700 as US Dollar weakness extends

GBP/USD is recovering to test 1.2700 in the European morning on Tuesday. Extended US Dollar weakness due to improved market mood, aids the pair's latest uptick. Traders look to the US sentiment data and Fed speeches for further impetus, as the UK calendar remains data-quiet. 

GBP/USD News

USD/JPY remains offered near 159.50 amid Japanese verbal intervention

USD/JPY remains offered near 159.50 amid Japanese verbal intervention

USD/JPY stays pressured near 159.50 early Tuesday, as the Japanese Yen benefited from the verbal intervention. Japan's Hayashi said he will closely monitor the FX moves and take necessary steps. Meanwhile, the US Dollar licks its wounds ahead of sentiment data. 

USD/JPY News

Editors’ Picks

EUR/USD advances toward 1.0750 on renewed US Dollar selling

EUR/USD advances toward 1.0750 on renewed US Dollar selling

EUR/USD is extending its mild recovery toward 1.0750 early Europe on Tuesday. Risk flows remain and exert additional downside pressure on the US Dollar while Euro traders reposition ahead of Sunday's French election. Mid-tier US data and Fedspeak stay in focus.

EUR/USD News

GBP/USD recovers to 1.2700 as US Dollar weakness extends

GBP/USD recovers to 1.2700 as US Dollar weakness extends

GBP/USD is recovering to test 1.2700 in the European morning on Tuesday. Extended US Dollar weakness due to improved market mood, aids the pair's latest uptick. Traders look to the US sentiment data and Fed speeches for further impetus, as the UK calendar remains data-quiet. 

GBP/USD News

Gold struggle extends above $2,300, with Fedspeak on tap

Gold struggle extends above $2,300, with Fedspeak on tap

Gold price is reversing a part of Monday’s rebound, as sellers fight back early Tuesday amid a risk-on market profile. The US Dollar nurses losses alongside the US Treasury bond yields, undermined by the dovish commentaries from Federal Reserve policymakers.

Gold News

Tron price primed for a surge after breaking descending trendline barrier

Tron price primed for a surge after breaking descending trendline barrier

Tron price has surged above and retested the descending trendline, indicating a bullish market structure. On-chain data reveals increasing activity among TRX active accounts, suggesting heightened blockchain usage that may fuel an impending rally in Tron’s price.

Read more

US Dollar offered, but intra-day momentum indicators are stretched

US Dollar offered, but intra-day momentum indicators are stretched

The Dollar Index reached its best level since May 1 before the weekend but has come back softer against all the G10 currencies and most emerging market currencies.

Read more

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology