If you keep up with my daily analysis videos, then you probably already noticed that I add the average true range indicator to most of my stock charts. I mean, there’s a reason why it’s the most widely used tool among pro traders.
But believe it or not, the ATR indicator doesn’t tell us which direction the stock market is moving…
So you’re probably asking yourself…
“Why would Roger film a video about a technical indicator that doesn’t directly determine if the market is headed up, down or sideways?”
In a nutshell, the ATR measures volatility, which can help us decide if we might want to initiate a trade or not.
So in this video, I thought I’d show you how to measure market volatility using the ATR indicator…
How to Measure Market Volatility Using the ATR Indicator
When setting up my charts, I always use the 10-day ATR indicator…
If you’d like your charts to look like mine, all you have to do is go to Barchart, find the index or stock you’re interested in trading, hit “Study” and then select the ATR. You might have to change the settings from the standard 14 days to 10.
You could use any platform you like, but I just like to use this one because it doesn’t cost anything.
The point I want to make is that the ATR clues us on what an index or stock’s fluctuation is like every day.
For example purposes only, let’s say we want to buy shares of Amazon.com Inc. (Nasdaq: AMZN) and Eli Lilly And Co. (NYSE: LLY). Using the 10-day ATR, we’d be able to see that AMZN has a volatility level of about 5 (due to its recent stock split) and LLY’s is 10.
This tells us that for every share we buy of LLY, we’d want to buy two shares of AMZN because its volatility and price is less.
Check out my short video at the top of page to learn more on how to measure market volatility using the ATR indicator.
Don’t forget to like and subscribe to our YouTube channel if you haven’t already so you can be notified as soon as we post our next video, and see what other trade opportunities we’re paying close attention to!
P.S. It’s no secret the markets are a complete mess right now…
Stagflation fears are rising… We’re over 100 days into the Russia-Ukraine war with no end in sight… Supply chain issues aren’t getting any better and the Federal Reserve has shown no signs of backing down on rate hikes…
All of this combined has led to one of the worst market sell-offs we’ve seen in years.
If you’re paying someone to move your money without understanding the reason behind their moves…
You don’t stand a chance.
Education is your best fighting chance at reducing risk right now, which is why I put together a private workshop to show a small group of traders how to protect themselves against further downside.
