Let Price Action Tell You Where the Trades Are

Trading using price action trading methods means to listen to what price is telling you. Nothing else matters.

When using the ATR (Average True Range) to determine your profit target (profit goal) and stop loss (maximum risk) on each trade, you’re allowing price to do the work for you. That’s why we use the ATR so much; we want to be adaptable based on what the market can reasonably provide in a given moment. Traders who used fixed values often find themselves getting stopped out prematurely or going for larger profit targets greater than current conditions reasonably allow. One is a conservative approach; the other is greedy. Get it? It’s best to use reason and use recent volatility levels determine the profit goal and max risk.

In the video, the ATR is the yellow squiggly line on the bottom of the chart. A period value of four is used. This means the average value of the most recent four bars is plotted on the right side in text. That value vertically aligns with the right tip of the squiggly ATR line. As each new candle closes, the ATR considers the new candle among the previous three. This occurs repeatedly. Hopefully this makes sense!

Now, when you’re using signal systems such as those in the trading video above, you have to use a profit target and risk approach that matches the style of those systems. For example, the Trade Scalper scalps. Scalping is fast, in-and-out trading, with many trades throughout the day for small wins. As such, you would not use a large profit target when the goal is a small win. Depending on market conditions and the chart type in use, you could go for three ticks to about a point maximum.

With the Atlas Line, the trades are fewer but the profit targets are greater. That’s ideal for traders who want to trade less often, but when they do, go for bigger trades. This helps save on broker commissions that can eat up a fair portion of smaller scalp wins.

Both day tradings systems serve their respective purposes and can help one another. The Atlas Line can filter the Trade Scalper’s signals via you, the human observer/trader, determining if both are recommending long trades, for instance.