When should you buy according to the ATR volatility trading rules?

According to the ATR (Average True Range) volatility trading rules, buying typically occurs when the closing price rises by more than 1 ATR from the previous close. This indicates significant upward momentum. The ATR is a measure of market volatility, and a rise of more than 1 ATR suggests that the price is breaking out of its recent range and that there is a strong potential for continued upward movement.

When evaluating higher ATR thresholds, while one might assume larger movements signify more potent trends, it is essential to note that waiting for a larger increase can lead to missed opportunities. A buy signal based on 1 ATR captures the essence of responsiveness to market conditions without being overly cautious. Thus, a rise by 1 ATR is typically the more prudent entry point for capturing early trends in the market, indicating bullish sentiment.

In this context, the approach being considered helps traders align their entry points with rising volatility and price movements, thus maximizing their chances of successful trades in a trending market scenario.