Crypto Trading 101: ATR The Ultimate Volatility Filter
Have you made a lot of profit during a trend, only to lose it during a range? With Cryptohopper’s Average True Range (ATR) indicator, you can now safely avoid ranges and only trade the profitable trends.
Without further due, let’s take a closer look at the ATR!
Average True Range
The Average True Range indicator (ATR) is a volatility indicator that increases and decreases in value to reflect the changing volatility of the market. For example, when the market is ranging, the ATR will have a relatively low value, while a high value indicates the opposite. This indicator can be used as a filter for trend-following or momentum indicators.
Here at Cryptohopper, we have taken this indicator a step further and added an exponential moving average (EMA) to the ATR to generate volatility confirmation signals on the crossovers between the ATR and the EMA. Within this system, a signal will be created when the ATR crosses the EMA upwards, indicating increased volatility. Another confirmation is generated when the ATR crosses the EMA downwards, displaying decreased volatility.
To make the ATR easier to spot visually, our team also added a green cloud for the periods with increased volatility and a red cloud for the periods with decreased volatility.
The ATR can work well with both momentum and trend-following indicator, so let’s take a look at what happens when we pair it with an indicator that has both components!
Moving Average Convergence Divergence
The Moving Average Convergence Trend (MACD) is a trend-following momentum indicator which generates signals on the crossover of two exponential moving averages. When the histogram turns green, a bullish crossover has taken place, and thus a buy signal is given, and when the histogram turns red a bearish crossover has taken place and a sell signal is given.
When you combine the MACD with the ATR, you will trade only when the MACD generates a buy signal, and the ATR confirms the volatility as displayed by the blue line on the graph.
We have used the following settings in our display of this strategy:
Take profit 3%
Stop-loss 2%
Without further due, let’s take a closer look at the ATR!
Average True Range
The Average True Range indicator (ATR) is a volatility indicator that increases and decreases in value to reflect the changing volatility of the market. For example, when the market is ranging, the ATR will have a relatively low value, while a high value indicates the opposite. This indicator can be used as a filter for trend-following or momentum indicators.
Here at Cryptohopper, we have taken this indicator a step further and added an exponential moving average (EMA) to the ATR to generate volatility confirmation signals on the crossovers between the ATR and the EMA. Within this system, a signal will be created when the ATR crosses the EMA upwards, indicating increased volatility. Another confirmation is generated when the ATR crosses the EMA downwards, displaying decreased volatility.
To make the ATR easier to spot visually, our team also added a green cloud for the periods with increased volatility and a red cloud for the periods with decreased volatility.
The ATR can work well with both momentum and trend-following indicator, so let’s take a look at what happens when we pair it with an indicator that has both components!
Moving Average Convergence Divergence
The Moving Average Convergence Trend (MACD) is a trend-following momentum indicator which generates signals on the crossover of two exponential moving averages. When the histogram turns green, a bullish crossover has taken place, and thus a buy signal is given, and when the histogram turns red a bearish crossover has taken place and a sell signal is given.
When you combine the MACD with the ATR, you will trade only when the MACD generates a buy signal, and the ATR confirms the volatility as displayed by the blue line on the graph.
We have used the following settings in our display of this strategy:
Take profit 3%
Stop-loss 2%