A few days ago I have written a post on trading the ATR. Those who have not read the post can visit the post now to read here: Catch The Exact Top And Bottom Of The Market With ATR Indicator. I named this trading strategy value as ATR Bounce Trading Strategy OR ATR Bounce Trading System.
The idea of ATR Bounce Trading System is very simple. Just watch the daily reading of the 14-day ATR OR Averate true range indicator or a particular stock or index or commodity. Suppose the closing price of the stock, index or commodity today is X and suppose today’s ATR reading is Y, then I derive tomorrow’s maximum high OR low from the below-mentioned formula.
Maximum high next day = X+Y
Maximum low next day = X-Y
So it is easy to find tomorrow’s range using the ATR indicator. Now how to trade the system? Next day whenever the stock/ index/commodity will move towards the maximum high open a short trade with a tight stop with a moderate target. For a long trade whenever the stock/ index/commodity will move near to the maximum low open a long trade with a tight stop with a moderate target.
Now, a classic example of the ATR Bounce Trading System was seen in the Nifty index yesterday, i.e. 15th February 2017. Last day, i.e, 14th February Nifty closed at 8792.30 and the 14-day ATR value was 76. So, next day’s long level was 8792-76 = 8716 and the short level was 8792+76 = 8868. Now let’s check the exact scenario. Check the image below:
The Nifty index opened, could not move higher and slipped towards maximum low zone to find exact bounce from 8713, super profit within few minutes, a spike from 8713 to 8750. You can check the ATR values of stocks/indices/commodities on Amibroker OR Zerodha Pi OR Kite platform. To open a Zerodha account for accessing Pi / Kite CLICK HERE.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.