LWMA ATR indicator: a global filter in any trading system
LWMA ATR indicator is a standard Average True Range indicator, in which the method of smoothing this very range has been changed. The standard Average True Range indicator uses a simple method of smoothing the range, so the entire calculated segment of the chart is averaged equally along its entire length.
The LWMA ATR indicator applies a linear-weighted method of smoothing, and therefore, the end of the range (the last closed candle) is assigned a higher coefficient of influence on the average value, and the beginning - a lower one. Thus, the further the candle is from the end of the chart, the less its influence on the final value of the range is.
Thus, this indicator allows you to accurately calculate the current volatility and based on it, calculate the optimal size of the stop, and when putting a stop in trading, the current volatility will play the first and decisive role in the size of that stop. Therefore it is advisable to place stops at different trading times, and not in a strict number of points.
Indicator parameters
- AtrPeriod - ATR period, a standard parameter, it is the range in bars on which the average volatility is calculated;
- Multiplier - the coefficient for calculating the adaptive stop loss, 1 point = 100%;
- Text_Corner - the position of the information text in the chart window: 0 - top left, 1 - top right, 2 - bottom left, 3 - bottom right;
- Text_Color - the color of the informational text.
Application in trade
The standard indicator ATR is used only to calculate the optimal values for stop-loss and / or take-profit, because the value of ATR is directly related to the market volatilityFor example, at high volatility there is no point in setting a small stop-loss, because the price with a high probability will "hit" it with a random movement, and the market will not even have time to "reach" the point of fixing the position that you expect.
According to ForTrader.org experts, LWMA ATR indicator can not be used to receive trading signals and open transactions. This indicator can only "prompt" when it is better to hold a position, and when it is better to close it, when it is worth looking for an entry point, and when it is better for some time do not trade, so the indicator LWMA ATR can be used as a global filter in any trading system.