How to calculate target motion: Average True Range
How to calculate the range of movement of the market for the trading day, to make it known how much we earn or lose? You need to have a realistic idea of how much the market can give you or rob you for every particular transaction. This applies to both deytreydinga and positional trading.
To correctly calculate the aims of the movement are invited to use the indicator Average True Range (ATR) . You can calculate the average range of motion for any period and on any timeframe.
Average True Range (ATR) is equal to the greater of the following values:
1) The difference between today's high and today's low;
2) The difference between today's high and yesterday's closing price (in cases with a gap up);
3) The difference between today's low and yesterday's closing price (in cases with a gap down).
If you trade a currency pair, whose daily ATR is 120 points, and today's motion has exceeded 100, then it's time to look at the situation realistically and seriously consider the option of closing the deal. Most likely, at this point, the deal has run its course, so squeeze all of it to the last paragraph makes no sense. Monetary instrument has passed its average daily range and are likely to come into flat or bounce off the resistance, of course, if that day is not scheduled to yield significant fundamental data. At such times, savvy traders are either closing their positions, or inverted, because soon the inertia of motion can dry up and the direction of change.
When the price goes over much of its range, is much more profitable not to pursue the last spurts prices and leave the market until it has made most of the participants. If you wait too long, the position will be closed only after the reversal has already occurred and the price is much backsliding. It is very important to exit the market as long as he allows it especially important to do so when the position is very high. Naturally, there are also days when the market for mid-range of ATR in 120 points is 150 and more - and so what? The average price is unlikely to exceed the range of 120 points. The essence of the game - to leave the market at a profit when the price has walked 80% of its average daily range.
When you have an idea of the average range, it is possible to calculate the logical target. It is illogical to expect from the pair, ATR is 80 points, the movement of 200 points per day. If you trade intraday, you can also use the ATR on the hourly and 4-hour charts.