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Using an ATR Trailing Stop Indicator for Spotting Trends and Reversals

For traders in the binary options market, keeping a close eye on trends is extremely important if they want to make winning trades. One of the best indicators they can use for spotting these trends is the Average True Range Trailing (ATR) Stop indicator. It will not only help them spot trades, but it will also help them choose the direction in which the market would be moving. It also can also be used to spot strong pullbacks in the market that would eventually lead to the failure of a trend.

Basically, ATR is a volatility-based indicator that uses the high and low values of a price bar to figure out the average volatility of a particular trend. The ATR results you get are always recorded in price values that are added to zero in order to predict the movement of price for a stock. As a running indicator, ATR gives new values every time it is used, which would be based on the latest market information.

When an ATR is applied to your chart, a line is created either above or below the price line. If the trend is down and this indicator line is above the price line, an upward movement in the price line where it rises above the indicator line would indicate a high danger of reversing trade. Similarly, if the conditions are exactly reversed, you would have a trend that could reverse. In some cases, the indicator also flips, i.e. the price moves sideways instead of going upwards or downwards.

This means that a pullback larger than usual has occurred in the market. This is the reason why traders should always conduct a price analysis to confirm trend changes instead of just relying on the ATR. In order to make the ATR more sensitive to the price changes, many traders decrease the setting to bring the indicator line closer to the price line. However, this can also increase the risk of receiving more false signals. Increasing the settings too much, on the other hand, can cause a delay in spotting trend changes.

There is one shortcoming to this indicator though: it only works best when the market is trending. If that is not the case and the market action is relatively choppy, traders will not get much useful data as the indicator line will keep flip flopping up and down around the price line. Also, this indicator would provide the most accurate signals when the price bars are closed. However, if you want to learn the direction of a trend but are planning to use supporting data as well, this can be a good indicator for you.

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