ATR Channel Breakouts for Commodity Futures

Summary

This note explains average true range (ATR) as a measure of price movement, then uses it to define a channel around a moving average. The middle line is the 25-day average closing price, and the upper and lower bands sit two ATR units above and below it. A close or price break above the upper band triggers a long position; a break below the lower band triggers a short position, reversing direction as the opposite boundary is crossed. The article presents this as an entry and reversal approach for commodity futures.

The document gives indicator definitions and trading rules, but no performance results, sample period analysis, or evidence that the strategy is profitable. It explicitly leaves position sizing and capital allocation unspecified. Its suggestion that volatility alone makes the strategy profitable is unsupported; transaction costs, whipsaws, contract characteristics, and risk controls would need evaluation. The page identifies the implementation as an older version intended for study.

Key ideas

• ATR measures recent price range and volatility rather than price direction.
• The channel uses a 25-day moving average of closes as its center.
• The upper and lower bands are placed two ATR units from the center.
• Crossing the upper band opens a long position, while crossing the lower band opens a short position.
• The article omits position sizing and capital allocation, and provides no evidence of profitability.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.