Range gauge in GO GO markets
"How far can it go?" This is the eternal question traders ask themselves, driven by their greed and fear emotions.
By Alan Knuckman
Wednesday, August 10, 2016 - 00:00
The reality is that a market move can always go much higher or lower than you think. Anything can happen though, more often than not, a more predictable set of results are the regular reality.
The ATR (Average True Range) puts the daily performance in perspective. This measure is not a directional indicator but a window into the recent range. The ATR is the largest of either the high-to-low range, previous close-to-the-high, or previous close-to-the-low. It was designed to show consolidating or expanding daily price ranges in the dynamic open outcry futures markets of days gone by.
The Welles Wilder ATR indicator was initially a 14 period moving average with shorter or longer time periods utilized by traders for sensitivity. Current electronic markets that trade nearly 24 hours are able to digest financial information with minimal price gaps which are the result of efficiency. Extreme differences from the close to the open have been largely reduced but not eliminated.
The ATR can give guidance into how much is left for a “typical” day’s move. It can be valuable when evaluating the risk to reward of strong trending action to quantify the expected magnitude. The ATR is a guide to what moves are more typical from the recent price action. This information can be used for informed entry, exit and stop-loss placement knowing what has happened in the past sessions.
Knowing how the market has moved in relative terms is one step in a disciplined approach in determining where it is going or not going.
A binary option strategy encompassing ATR profits from forecasting where prices should and/or should not go if past performance is indicative of future results.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.