Average True Range measures market volatility by calculating the average range of price movement over a specified period, accounting for gaps. Developed by J. Welles Wilder, ATR does not indicate direction — it quantifies how much an asset typically moves, making it essential for position sizing, stop-loss placement, and volatility-based trade management. Rising ATR indicates increasing volatility; falling ATR signals contracting volatility.
True Range: the greatest of current high-low, abs(high-previous close), abs(low-previous close). ATR is typically calculated over 14 periods. Rising ATR = expanding volatility. Falling ATR = contracting volatility. ATR is non-directional — it measures magnitude, not direction. Used for position sizing: smaller positions when ATR is high, larger when ATR is low.
Enter breakout trades when ATR is at historically low levels (volatility contraction precedes expansion). Size positions inversely to ATR — if ATR doubles, halve your position size to maintain consistent risk. Use ATR-based entries: buy when price moves more than 1 ATR above a key level in one bar. Look for ATR expansion on breakout bars to confirm genuine momentum.
Place stops at 1.5-2x ATR from your entry point to accommodate normal market noise. Trail stops using a Chandelier Exit (highest high minus 3x ATR). Exit if ATR spikes to extreme levels, as this often occurs at climax moves. Take profits when price moves 2-3x ATR from entry in a single session.
All timeframes — ATR adapts to any period
ATR is the single most important tool for position sizing — traders who size positions based on ATR maintain consistent risk across different volatility environments. Use ATR percentile rank (where current ATR sits relative to its own history) to assess whether volatility is high or low in context. Combine ATR-based stops with structural stops (below swing lows) for optimal placement.
The Ichimoku Kinko Hyo (Ichimoku Cloud) is a comprehensive indicator system that defines support and resistance, identifies trend direction, gauges momentum, and generates trading signals — all in a single glance. Developed by Goichi Hosoda, the system consists of five lines and a shaded cloud (Kumo) that projects into the future, providing a uniquely forward-looking view of market equilibrium.
Rate of Change is a pure momentum oscillator that measures the percentage change in price over a specified number of periods. It oscillates around a zero line, with positive values indicating upward momentum and negative values indicating downward momentum. ROC is useful for identifying momentum shifts, overbought/oversold conditions, and divergences that precede price reversals.
The Average Directional Index quantifies trend strength on a scale from 0 to 100, regardless of direction. Developed by J. Welles Wilder, ADX is derived from two directional movement indicators (+DI and -DI) that measure bullish and bearish pressure respectively. A rising ADX above 25 signals a strengthening trend, while ADX below 20 indicates a ranging or trendless market — making it an invaluable filter for choosing between trend and range strategies.
The Ultimate Oscillator, developed by Larry Williams, combines buying pressure across three different timeframes — typically seven, fourteen, and twenty-eight periods — into a single indicator weighted to reduce false signals. By incorporating multiple timeframes, it avoids the whipsaws common in single-period oscillators while still providing timely signals. Williams designed specific entry criteria involving divergence and threshold breaks to trade this indicator.