Many traders are picky about indicators and only like to trade based on price action (using momentum and candlestick pattern) to make decisions to enter orders. Many other traders like to insert dozens of indicators and use them as a transaction basis.

In addition, some indicators are valuable for one strategy but not necessarily useful for another.

Deciding which indicators to use and which ones you don't need is really not easy. There are thousands of indicators available in the trader community. Each has its own benefits. However, not all are suitable for us.

The good news is that there is a simple yet effective indicator tool, and I think it is suitable for everyone, especially those who want to integrate this indicator into their system. That is the ATR - Average True Range indicator.


AVERAGE TRUE RANGE (ATR) - A GREAT TOOL

ATR is one of the rarest and best indicator tools that you will always need on your charts, because it provides very crucial information about the probability and how likely the market will go. , hit your stop loss and take profit or not.

Knowing if your exit is in the range of an oscillating price range is important because it will help you know how to avoid a stop loss from that zone or where your take profit will be most easily touched.

DETERMINATION OF ORDER EXIT POINT WITH ATR

Traders often prefer to use a variety of tools to determine the exit point, but those cannot fulfill these:
  • There is a practical basis to determine take profit.
  • There is a practical basis to determine the stop loss.
  • Have a practical basis to trailing stop in a safe way.
ATR is an indicator that can meet the above 3 criteria.

ATR is an indicator that can meet the above 3 criteria.

The ATR can indicate the average range of price history over a predetermined period and so we can place an exit point (whether take profit or stop loss) based on this area for a rationale and a high probability of success.

Specifically, how to set stop loss and take profit as follows:
  • Stop-loss in ATR - DANGER: the stop loss will be too close, the price fluctuates, and is easy to touch the stop loss.
  • Stop-loss outside ATR - SAFE: the stop loss will be far from the price action area, it will be harder for the price to reach the stop loss.
  • Takeprofit in ATR - SAFE: profit-taking target will be in the price range, the price will easily touch take profit.
  • Takeprofit outside the ATR - DANGER: the take profit target is outside the active price range, it will be harder for the price to touch the take profit level.

Note:
  • According to ATR, the stop loss should be here
  • A trader using tight stop loss based on the nearest high will lose this order.
EPILOGUE

With the above ideas, we can come up with a simple conclusion:

To improve your take profit point place it in the ATR zone. To properly set the stop loss set it outside of the ATR zone.

There are not many indicators that are able to help a trader with such clear determination. The simplest and most effective still can only be the ATR.

WHAT PARAMETER SHOULD SET ATR?

It is recommended that you follow parameter 20.

When placing a stop loss, it is recommended that you take 7 to 12 times the ATR value. That means you take the value of ATR and multiply it by 7 to 12 times.

When placing take profit, it is recommended that you take 4 to 8 times the ATR value.

Why use it like that?

Perhaps there is a big gap between the numbers 7 and 12 for the stop loss and 4 and 8 for the take-profit, right? You will wonder why.

The market is not a rigid structure, it is very flexible. It will fluctuate extremely random and extremely wide in some cases. These numbers worked really well. Depending on the personality of each individual, we multiply by the appropriate number mentioned above.

There is another way that thinks is even more effective than let's use the higher timeframe resistance/support to pick out the stop loss and take profit levels in the calculated area like above. More specifically, you multiply the ATR multiplied by 4 and multiplied by 7 to get 2 prices. These two prices form a wide area, then we will find resistance, support lies within that zone, and place a specific stop loss at that level. Do the same with placing take profit.