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The ATR Channel breakout strategy
The ATR Channel Breakout strategy is a trend-following strategy. The trading strategy was described by Curtis Faith in his book “Way of the Turtle”.
Note: In the eighties the so-called Turtles were ordinary people trained by Richard Dennis, a very successful trader. He taught them two profitable trend-following strategies. Once they completed their training, Dennis gave them an account of up to 2 million USD to trade. Curtis Faith, who was one of the Turtles, earned over $30 million for Dennis at that time.
|: All instruments
|: Futures and CFD-Forex
|: Day trading and swing trading
|Using NanoTrader Full
|: Manual or (semi-)automatic
Faith’s strategy is a volatility-based approach. He prefers 60-minute or day charts. It uses the Average True Range (ATR) as a measure for price fluctuations. Instead of the traditional way of displaying the ATR as an oscillator below the main chart, the strategy plots the ATR value as a channel around an average of the close price.
When to open a position?
A buy signal is triggered when the close price crosses above the top of the channel. A short sell signal is triggered when the close price crosses below the bottom of the channel.
This example shows the ATR Channel with its green and red edges. The orange line is the strategy’s average price. A buy signal was triggered after the candle closed above the channel. A buy signal is indicated by a green background in the chart.
When to close a position?
The designer did not include one of the traditional stop loss
orders in the ATR Channel Breakout strategy. However, there is
an implicit stop: when the market price crosses the strategy’s
orange average price line.
Curtis Faith does not trade with a specific profit target. It is every trader for himself. Take profit when you feel that the profit is a fair reward for the risk you took i.e., the distance to the orange line.
This example shows a 60-minute chart with a buy signal. For the sake of this example the position close is shown as the return below the strategy’s average price line. It is clear, however, to all readers that the trader would have been able to exit this position, with a significant profit, before.
The ATR Channel Breakout strategy is a very simple and straightforward trend-following strategy which was used with great success by some of the legendary Turtle traders.
With the NanoTrader platform users are encouraged to try and improve the strategy by adding and testing stop-loss and profit target orders. This is not complicated.
Using the NanoTrader Full follow these steps:
- Open a chart of the instrument you want to trade.
- Select the template study "WHS ATR Channel Breakout” in the "WHS Strategies" folder.
- To trade semi-automatically, activate TradeGuard+AutoOrder in the chart. To trade automatically, activate AutoOrder in the chart.