Channel ATR

1 - What is the Channel ATR indicator

This is an envelope indicator (like the Bollinger bands indicator) used to evaluate how much the price diverge from it's moving average.
This indicator can be used as a system on it's own. I recommend to use it when the market goes side way, although, you can also use it when the market is trending.
What makes this indicator so relevant and reliable ? The use of the ATR to build the envelope. Read below if you wan to know more.

2 - How is the Channel ATR computed

The main component is an EMA. The envelope is made of 3 layers, each is the Average True Range, plot at a multiple distance from the EMA (1*EMA, 2*EMA, 3*EMA). If you don't know what is the ATR, it's basically a measure of the volatility (you can read more about it here).
Each layer of the envelope is a multiple of the measure of the volatility. Let's see how to use it.

3 - How to use the Channel ATR indicator

You can use this indicator in different strategies :

- Return to the mean: When the price goes out of the envelope, it's an excess of the market. You can take advantage of this by betting to a return to the EMA value.
- Trend following : If the market is tending, you can buy/sell when the price touch the EMA and place a target at another level in the envelope.
- Stop loss: Since each envelope layer is built from the ATR (i.e. the volatility), you can use it to place your stop at least at 1 ATR from your entry, to not be hit by the market noise.
- Find your own way : The Channel ATR is a very rich and powerful indicator, you can try to built your own trading system on the top of it.