Average True Range
How to use it to identify your exit from a trade ?
Market events for this week, James Sullivan, JP Morgan Chase, Co-Head of Global Fundamental Research
Disclaimer : Not stock, trading or betting advice, this is merely for illustration purposes
Average True Range is a looking glass into the future
It tells you where you can take profit on the upside. If you buy at 100 and the long play starts to work, where would you take profit ?
Is it at 105, 110 or 120 ?
If there is a strong catalyst, such as a very strong earnings call where they have great Q4 2025 earnings (revenue and EPS beat), and increase Q1 2026 guidance,
then, going long makes sense
Opening drive at 0930 EST makes sense too, as tons of volume comes in at the open, and you’ll know if your play works or not, instantly
Average True Range, or ATR - tells you how much a stock moves within a day, average-ed over the last 14 days
Every stock moves up and down every day,
and conceptually speaking, you can think of the amplitude in price each day, as the ATR for that day. Then average the ATR for the last 14 days, and that is your expected ATR
It tells you how much I expect CrowdStrike (CRWD) to move on that day
Here is a real world example - CrowdStrike reported earnings on 3/3, with very strong revenue and EPS beat
Scanners tell us that the 14 day ATR for CRWD is 20.87
CRWD had a strong move to the upside on 3/4, and sometimes, up trends continue into the second day after the earnings call
Here is the opening drive between 0930 and 10 AM for CRWD on 3/5
Intraday 1m plot, and I have annotated the length of the vertical move
It is + 20.26 from opening bell, after which it drops. pretty much in agreement with what our 14d ATR told us (20.87)
Once it spikes to +20 from opening bell, you know it is at its potential highest point for the day and it is time to get out of this trade
In other words,
If you get long at x, your possible exit can be at x + (1 ATR), which in this case is x + 20
As I said, ATR is a looking glass into the future
Have a great weekend
— Deepak Sivaraman PhD (Axe), adeadcatbounce@gmail.com
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