Combining the Average True Range and the Simple Moving Average envelope

You will learn about the following concepts

Indicators used in this strategy

Signals to look for

Entry point

Stop-loss

Profit target

For this strategy, we will examine the daily chart of EUR/AUD. We will use the 20-period Simple Moving Average (SMA) with a 0.5% envelope and the 14-period Average True Range (ATR).

The trader should examine the price action, looking for potential breaches of either bound of the envelope. If a candle breaks and closes above the upper bound of the envelope, the trader will go long at the open of the next candle. The protective stop will be placed in accordance with the ATR of the signal candle; if the ATR is 70, the stop will be 70 pips below the entry price. If the stop is triggered, the trader will wait for another signal (buy or sell) to appear. If the trade moves in their favour, the trader will keep the position open until the opposite signal (sell) appears.

If a candle breaks and closes below the lower bound of the envelope, the trader will go short at the open of the next candle. The protective stop will be set in accordance with the ATR of the signal candle; if the ATR is 110, the stop will be 110 pips above the entry price. If the stop is triggered, the trader will wait for another signal (buy or sell) to appear. If the trade moves in their favour, the trader will keep the position open until the opposite signal (buy) appears.