Home Deriv Stop Loss Average True Range: Everything You Need To Know

Stop Loss Average True Range: Everything You Need To Know

Introduction

Stop Loss Average True Range (ATR) is a technical analysis indicator that helps traders determine the potential volatility of a security. This indicator is widely used by traders to manage risk and protect their investments. In this article, we will discuss everything you need to know about Stop Loss ATR, including its definition, calculation, and how to use it in your trading strategy.

What is Stop Loss ATR?

Stop Loss ATR is a technical indicator that helps traders determine the potential volatility of a security. This indicator is based on the Average True Range (ATR) indicator, which measures the volatility of a security over a certain period. Stop Loss ATR is calculated by multiplying the ATR value by a certain multiple.

How to Calculate Stop Loss ATR?

The calculation of Stop Loss ATR is quite simple. It is calculated by multiplying the ATR value by a certain multiple. For example, if the ATR value of a security is 2 and the multiple is 3, then the Stop Loss ATR value would be 6.

How to Use Stop Loss ATR in Your Trading Strategy?

Stop Loss ATR can be used in various ways in your trading strategy. One of the most common ways to use this indicator is to set your stop loss based on the Stop Loss ATR value. For example, if the Stop Loss ATR value is 6, then you can set your stop loss at 6 times the ATR value.

Example:

Let’s say that you are trading a security that has an ATR value of 2. If you want to set your stop loss at 6 times the ATR value, then your stop loss would be at 12. This means that if the security moves against you by 12 points, your stop loss would be triggered, and you would exit the trade.

Advantages of Using Stop Loss ATR

There are several advantages of using Stop Loss ATR in your trading strategy. Some of these advantages include:

  • It helps you manage risk by setting your stop loss based on the potential volatility of the security.
  • It helps you protect your investments by limiting your losses when the security moves against you.
  • It helps you stay disciplined by sticking to your trading plan and avoiding emotional decisions.

Disadvantages of Using Stop Loss ATR

Like any other technical indicator, Stop Loss ATR also has some disadvantages. Some of these disadvantages include:

  • It may not work well in all market conditions.
  • It may result in frequent stop loss triggers, leading to losses.
  • It may not be suitable for all trading styles.

Conclusion

Stop Loss ATR is a useful technical indicator that can help traders manage risk and protect their investments. This indicator is based on the Average True Range (ATR) indicator, which measures the potential volatility of a security. By setting your stop loss based on the Stop Loss ATR value, you can limit your losses when the security moves against you. However, like any other technical indicator, Stop Loss ATR also has some disadvantages, and it may not work well in all market conditions. Therefore, it is important to use this indicator in conjunction with other technical indicators and fundamental analysis to make informed trading decisions.

Additional Tips

  • Always test your trading strategy using historical data before using it in the live market.
  • Always use proper risk management techniques, such as setting stop loss and take profit levels.
  • Stay updated with the latest news and events that may affect the market.
  • Stay disciplined and avoid emotional decisions.

References

Here are some recommended resources to learn more about Stop Loss ATR: