ATR Matrix

Our TradeVision 2020 ATR Matrix is one of our most important tools. It doesn’t look like much, but it is essential to your success. Do NOT skip this tutorial. You will use ATR’s with all of our systems and in most of your calculations. 

Risk is Everything

All trading is educated guessing. Some guesses are much better than others, but unless you have insider knowledge or some other guarantee, we use the best data to analyze our options and then pick (guess) the best option. Some traders hate the notion of guessing, but it’s true.

It might seem silly to risk money on a guess, but what if I told that, with the right math in your favor, you only have to be right 40% of the time to make increase your equity. Almost anyone can guess 1 of 5 correctly. Our tools will help make correct choices more than 50% of the time. Doesn’t sound like much, but with a 1 to 1.5 risk/reward ratio or greater, you can grow your account very fast. Let’s break-down the math and see why.

 

Risk/Reward Example: If our Stop is 50 pips away from our entry price, and we want to use a 1 to 1.5 risk/reward ratio, our Limit order needs to be 75 pips from our entry price. Our potential profits need to be 1.5 times our potential loss on every trade. If we change the formula once, it skews our risk/reward percentage. 

Example using $ instead of pips:

Stop = $500 in losses if reached, then our Limit should = $750 if reached

The Math

The table below explains the relationship between risk, reward and winning percentage. Perhaps the easiest example: if you have a 1 to 1 risk/reward ratio, your average or overall win rate has to be 50% or greater to generate profit. If we increase our risk/reward ratio, our overall win rate can be lower and still generate profits.

Risk/Reward Ratio
Average Win Rate To Break Even
1 to 3
25%
1 to 2
33%
1 to 1.5
40%
1 to 1
50%
1 to 0.7
60%
1 to 0.3
75%

Why Use ATR’s?

ATR stands for “Average True Range”, and each ATR value is based on the relative time frame. Example: a 5 Min ATR is an average range of X: where “X” is a number of bars back on a historical chart – we use 200 bars on our ATR Matrix. Think of ATR’s as the price volatility personality of a currency pair in each time frame. Instead of using a fix value for all of your Stop and Limit orders (i.e., a 50 pip Stop on all trades and a 100 pip Limit), use a multiple of ATR’s to customize your Stop and Limit to each currency pair.

Using ATR’s

When you open a new trade, use the follow formula and directions to calculate your Stop, Limit and Lot size, Open an online tool (or you can do the math manually, but we recommend using the tool) and the ATR values from our ATR Matrix and follow our simple instructions below. If you have questions, please contact us for help and always demo trade first.

  1. Locate the 60Min ATR values for the currency pair that you are trading
  2. To calculate the total number of pips for your Stop order, multiply the 60Min ATR by 2.7
  3. To calculate the total number of pips for your Limit order, multiply the 60Min ATR by 4.3

Now you have the total number of pips for your Stop and Limit orders. Next, you need to calculate your lot size (the size of your trade). To do this, open up the online tool (we like the MyFXBook tool) and input your trade information. From top to bottom:

  • Account Currency (the deposit currency of your account – we used USD for this example)
  • Account size (use your fixed equity and not your floating balance – we used $25,000 for this example)
  • Risk Ratio (input “2” for 2% risk, please do not risk more than this)
  • Stop-Loss Pips (use the total number of pips calculated in Step 2 from above – we used 50 for this example)
  • Currency Pair (select the currency pair that you are trading – we used the EURUSD for this example)
  • Click on the “Calculate” button at the bottom to see your lot size

RESULTS: In this example, our lot size is 1 standard lot or 100,000 units (i.e., a mini lot is 10,000 units). We would open our EURUSD trade with 1 standard lot, then place a 50 pip Stop and a 79 pip Limit (we used a 18.5 60Min value for this example).

Now our trade is personalized based on the currency pair’s price volatility profile instead of random fixed values. We are more likely to establish a consistent pattern of winning trades if our Stop and Limit orders are customized based on the currency pair’s price action.

NOTE: Please demo trade first before using live funds! While demo trading, you should establish a consistent pattern of winning trades before you begin trading real money.