The Best Volatility Indicator For Trading

A Step-by-Step Guide to This Famous Indicator

Trading is a combination of four things, research, implementation, risk management, and post-trade evaluation. The bulk of what we spend our time doing is the first two, meaning that we spend the vast majority of the time searching for a profitable strategy and implementing it (i.e. trading).

However, we forget that the pillar of trading is not losing money. It is even more important than gaining money because it is fine to spend time trading and still have the same capital or slightly less than to spend time trading and find yourself wiped out.

In this article, we will discuss the third pillar as a way of enhancing returns and capital protection. Every trading strategy must be accompanied by its own personalized risk management protocol. One such protocol (or indicator) is the famous average true range.

The Concept of Volatility

To understand the average true range, we must first understand the concept of volatility. It is a key concept in finance, whoever masters it holds a tremendous edge in the markets.

Unfortunately, we cannot always measure and predict it with accuracy. Even though the concept is more important in options trading, we need it pretty…