Chart
This week’s coin is XRP. In the chart, we can see Ripple’s evolution for the last two months, a period of time in which it has increased by over 50%. During the second half of December and the beginning of January, XRP had been ranging and having very low volatility. However, as of 6 of January, the demand started to appear in this market and the volatility began to peak.
A very useful indicator to know how volatile a cryptocurrency is, is the ATR. At Cryptohopper, we have tweaked it to use it as a volatility filter. We have added a second line to the ATR to pinpoint the moments where the price is more volatile. As you can see in the chart, when the ATR line (orange line) is below the blue line, the price is not volatile and it is likely to be ranging. On the other hand, when the ATR line is above the blue one, the volatility of the market is increasing, which means that the price is initiating a new trade and there will be more trading opportunities.
As you probably know, volatility indicators don’t signal a buy or sell, they can pinpoint when the price is more volatile, it doesn’t matter if it’s trending up or down. Then, if it doesn’t signals a buy or sell, or suggest where the price might go, how can we use it? Simple, to avoid trading in ranging markets.
In the next section, we analyze how to configure it in your automated trading strategy!
Designing your automated strategy
Now that we know how we can make use of the ATR, let’s put it in practice!
As we previously said, when the ATR line (orange line) is below the blue line, the price is not volatile and it is likely to be ranging. Ranges are usually called “No Trade Zones” since the price is not likely to offer many profitable trading opportunities. When the volatility is low, the ATR line is below will signal “Unconfirmed” and won’t let the other indicator(s) of your strategy open a position when it/they signal a buy. However, when the volatility starts to increase, the ATR line will go above the blue line. It means that the price is starting to trend. Then the ATR will signal “Confirmed” and will allow the rest of indicators of your strategy to open a position when it/they signal buy.
As we can see in the chart above, we chose the ATR and the MACD. The zones where the ATR line is below the blue line are commonly ranges, that is, No trade zones. Even the MACD is making several bullish crossovers, it won’t open a position because the ATR is signal “Unconfirmed”. Nevertheless, when the price starts trending up, the ATR line rises over the blue line and signals “Confirmed” and will let the MACD signal buys and open positions.
In the chart, we can see when this strategy opens positions. It avoids trading during ranges and trades during trends.
This week’s coin is XRP. In the chart, we can see Ripple’s evolution for the last two months, a period of time in which it has increased by over 50%. During the second half of December and the beginning of January, XRP had been ranging and having very low volatility. However, as of 6 of January, the demand started to appear in this market and the volatility began to peak.
A very useful indicator to know how volatile a cryptocurrency is, is the ATR. At Cryptohopper, we have tweaked it to use it as a volatility filter. We have added a second line to the ATR to pinpoint the moments where the price is more volatile. As you can see in the chart, when the ATR line (orange line) is below the blue line, the price is not volatile and it is likely to be ranging. On the other hand, when the ATR line is above the blue one, the volatility of the market is increasing, which means that the price is initiating a new trade and there will be more trading opportunities.
As you probably know, volatility indicators don’t signal a buy or sell, they can pinpoint when the price is more volatile, it doesn’t matter if it’s trending up or down. Then, if it doesn’t signals a buy or sell, or suggest where the price might go, how can we use it? Simple, to avoid trading in ranging markets.
In the next section, we analyze how to configure it in your automated trading strategy!
Designing your automated strategy
Now that we know how we can make use of the ATR, let’s put it in practice!
As we previously said, when the ATR line (orange line) is below the blue line, the price is not volatile and it is likely to be ranging. Ranges are usually called “No Trade Zones” since the price is not likely to offer many profitable trading opportunities. When the volatility is low, the ATR line is below will signal “Unconfirmed” and won’t let the other indicator(s) of your strategy open a position when it/they signal a buy. However, when the volatility starts to increase, the ATR line will go above the blue line. It means that the price is starting to trend. Then the ATR will signal “Confirmed” and will allow the rest of indicators of your strategy to open a position when it/they signal buy.
As we can see in the chart above, we chose the ATR and the MACD. The zones where the ATR line is below the blue line are commonly ranges, that is, No trade zones. Even the MACD is making several bullish crossovers, it won’t open a position because the ATR is signal “Unconfirmed”. Nevertheless, when the price starts trending up, the ATR line rises over the blue line and signals “Confirmed” and will let the MACD signal buys and open positions.
In the chart, we can see when this strategy opens positions. It avoids trading during ranges and trades during trends.