/biz/ - Business & Finance

>>54526017
Here watch this video on how to use ATR. Note that we give zero fucks about the output; all we care about is the single current value.
https://www.youtube.com/watch?v=086ozcHDZPw

Using SPY as an example, let's suppose you think the RSI is overbought and we want to short. Currently the ATR on default settings is 5.50 (dollars moved per day, on average). Let's say we shorted just before market closed. We take profit at 1.0x ATR (409.19 - 5.50) = 403.69, and we stop loss at 1.5x ATR (409.19 + 1.5 x 5.50) = 417.44
If you have a balance of 10,000 you can only afford to risk 2% on a bad trade. So 2% is $200, which means that the ATR on the SL against you needs to = 200 / (5.5 * 1.5) = 24.24 units traded. Since we can't trade fractional equities, we short 24 SPY, TP at 403.69, SL at 417.14. Once you enter that trade, you let it finish one way or the other. Do not exit early.
Once your TP is hit, you close half your shares (to 12) and then you've guaranteed profits at this point. Now you just move your TP to break even and keep adjusting it as price moves in your favor (I usually set it based on current ATR).