How do you enter trades based on volatility? | Forex Factory

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How do you enter trades based on volatility?

  • #1
  • First Post: Nov 10, 2013 6:32pm Nov 10, 2013 6:32pm
Hi everyone,
could you please let me know how you decide to enter (or not) the trade based on Volatility.

Do you use indicator such as ATR and how you use it (i.e do you have any rules that you enter the trade only if the current ATR is higher then ATR for certain number of the past periods)?

Is there some other approach you use?

Thanks...
  • #2
  • Nov 11, 2013 11:42am Nov 11, 2013 11:42am
Hi,

I use the ATR to determine the lotsize, not if I want to enter or not. So, higher volatility -> lower lotsize.
I also use it to determine stoploss and takeprofit levels (something like: x% * ATR)

If you want to use ATR to entry or exit a trade, you have to make statistical relevant evaluations of your logic, as usual, then you will know if you found a good way to use it.

-Darwin
  • #3
  • Nov 11, 2013 3:47pm Nov 11, 2013 3:47pm
Quoting Darwin-FX
Hi, I use the ATR to determine the lotsize, not if I want to enter or not. So, higher volatility -> lower lotsize. I also use it to determine stoploss and takeprofit levels (something like: x% * ATR) If you want to use ATR to entry or exit a trade, you have to make statistical relevant evaluations of your logic, as usual, then you will know if you found a good way to use it. -Darwin
Thanks a lot Darwin.
I am finding that some of my setups using either Genesis or crossing Stochs or any other strategy that are solid entry setups do not lead anywhere simply because market is not moving at certain times of day. So instead of looking at the only market open ties and influx of fresh funds into the market I am trying to understand how is everyone measuring volatility and using this data to enter (or possibly exit) the trade.

Thanks for all comments...
  • #4
  • Nov 11, 2013 4:45pm Nov 11, 2013 4:45pm
I believe ATR is the average of the difference between the open and close of the candles over a set period of your choosing.. I think this works decently but am in favor of charts minus oscillators if possible. I do the same thing visually but compare relative body lengths near current pricing with a similar time period, example: same time of day or reverence to news event.. The wider the body the greater the volatility or measured price range during a session of time period is also an indication of volatility.. This is how I approach volatility. Any volatility greater or less than the norm raises a flag. If volatility is less than expected then it a wait signal (no trade). If volatility is greater than normal I start to look for entries or exits depending. Doing this will keep me out of a lot of bad trades even though everything else is lining up..

I use MT4 measuring to tool to verify volatility instead of an oscillator such as ATR. To me it seems more useful because I can just not measure activity I feel is just market noise or news reactions that do change underling market fundamentals and drivers.. like interest rates and unemployment.

Cheers.
  • #5
  • Nov 12, 2013 12:53am Nov 12, 2013 12:53am
Quoting ZoranB
Hi everyone, could you please let me know how you decide to enter (or not) the trade based on Volatility. Do you use indicator such as ATR and how you use it (i.e do you have any rules that you enter the trade only if the current ATR is higher then ATR for certain number of the past periods)? Is there some other approach you use? Thanks...
ATR is probably the easiest volatility filter that you have available so try your vision out. There are other more sophisticated ways but ATR should work fine as a broad brush technique to get you going
  • #6
  • Nov 12, 2013 2:56am Nov 12, 2013 2:56am
One thing left to mention: ATR 14 on daily candles seems to have the best results for me

Also, here is my code to determine lot size based on volatility and account equity (where risk_factor is a int from 1-5, the higher, the more money the system risk per trade)

Quote
lot = (risk_factor / 100.0 * AccountEquity());
lot /= (MarketInfo(Symbol(), MODE_LOTSIZE) * iATR(Symbol(), PERIOD_D1, 14, 0));
  • #7
  • Nov 12, 2013 4:10pm Nov 12, 2013 4:10pm
Quoting Darwin-FX
One thing left to mention: ATR 14 on daily candles seems to have the best results for me Also, here is my code to determine lot size based on volatility and account equity (where risk_factor is a int from 1-5, the higher, the more money the system risk per trade) {quote}
Thanks a lot Darwin!!!
  • #8
  • Nov 12, 2013 4:11pm Nov 12, 2013 4:11pm
Quoting MaxDoom
{quote} ATR is probably the easiest volatility filter that you have available so try your vision out. There are other more sophisticated ways but ATR should work fine as a broad brush technique to get you going
Thanks MaxDoom...
Would you mind explaining how exactly you are using the ATR (i.e. over what period on what chart and do you limit the entry based on the ATR value, ...)
Thanks...
  • #9
  • Nov 17, 2013 8:20pm Nov 17, 2013 8:20pm
I took another look at this oscillator. Seems to be useful if you know what your looking for.. I still take a lot of manual measurements but ATR look useful in determining probability of continuation or short term reversals. Because it is an oscillator it would be very easy misinterpret what the increase or decrease in the Average True Range means.. looks to be nice check of what can already be seen in the chart..

For instance continuations usually show a decrease in volatility (ATR value) from the reversal point. Each new wave of the trend is likely to show as increase in ATR value. However, its all relative to price action and market sentiment and not absolute.. At least that's my take.
  • #10
  • Last Post: Nov 18, 2013 2:00am Nov 18, 2013 2:00am
I think high volatility currency pairs needs to be entered when there is obvious movement is seen. For example if you see that trend went up for 5-10 pips it is likely to expect the movement to make some pips up still more.
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