ATR explanation help please

Hi to all of you,

Please help me with something regarding the ATR values reading that I don't quite understand and I wasn't able to find the explanation in other parts of the web (Google search).

So, for 26.11.2007 my EURUSD (daily chart) ATR value is 0.0094 meaning 94 pips right?
At the same time the USDCAD (daily chart) ATR value is 0.0135 meaning 135 pips?

What is the value for the ATR for GBPJPY (daily chart) which shows 3.5164 - does this mean that it is 351.64 pips or is it another value?
Also for EURJPY the ATR daily charts value is 3.9543 - does this mean 395 pips?

Also, as another question, do you use ATR for SL levels, for medium to long term trading (daily charts) and if so, do you use a certain ATR percentage (70%, 100%) in connection with support and resistance?

Thanks in advance for your help, I hope I will get my misunderstanding fixed.

All the best I wish to you all,

Bogdan.

Hi Bogdan

If you don't mind I'll answer with an explanation - might help in future.

The smallest unit in which a currency price is normally quoted is called a pip. A pip, the last decimal place of a currency, is the minimum fluctuation or smallest increment. Each pip has a value in relationship to the exchange rates of the currency it is representing. A pip will always represent the last decimal place of the traded currency

For example:
GBPUSD might be quoted at 2.0709, if this price moved to 2.0710, the price would have moved by one pip.
GBPJPY might be quoted at 223.73, if this price moved to 223.74, the price would have moved by one pip.

So yes, you've got it right.

You can find a strategy that uses ATR over here - http://www.forexfactory.com/showthread.php?t=12808 . I speak under correction but they multiply the ATR with a factor to calculate a trailing indicator which act as a stoploss. I imagine you can use it as a support or resistance of some sort.

I don't know of anyone who explicitly uses ATR for a stop level. There are however, several respected trading books in which the authors suggested anything inside of 3 ATR is noise. Remember, ATR can be applied to any chart so 3 ATR on a 15 minute chart is significantly less than 3 ATR of a daily chart. The point is that a stop inside of 3 ATR is not indicative of a market turning point but rather a collection of randomness.

Keltner channels plot ATR as a band so you might want to explore those if you are interested in the subject.

Hi to you all,

Just wanted to say "THANKS" for your quick and useful replys and willingness to share your knowledge - I appreciate it a lot!

All the best,

Bogdan.