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Double Adaptive Average True Range Profit Objectives

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Having well-planned profit objectives is the best way to maximize closed-out profits.

The tendency is to either take profits too soon or too late and most traders tend to err on the side of taking profits too soon.

Taking a quick profit always feels good and helps to maintain our winning percentage because these "nailed-down" profits will never turn into losses. However, taking profits too soon can be one of the most costly of all possible mistakes.

It has been argued that profits in trading (especially in futures) are possible because the distribution of prices is not normal and is not a typical bell-shaped curve.

The tail on the right hand side tends to be surprisingly thick indicating that unexpectedly large profits are possible.

The opportunity for large profits comes our way more often than one might expect. However, if we went for big profits on every trade we would also be making a big mistake.

Major profit opportunities are the exception not the rule.


In very general terms there are two ways of having an advantage or "edge" in trading. One is to have gains much larger than losses and the other is to have more winners than losers.

To succeed as traders we need to do our best to maximize both the percentage of winners and the size of the winners. These two worthy goals appear to be mutually exclusive. If we take the quick small profits we can have a good winning percentage but we eliminate any possibility of more substantial profits.

However, if we fail to take some of the small profits they may well turn into losses.

Wouldn't it be ideal if we could know when it was best to take small profits and when it was best to hold patiently for big profits?

In previous Bulletins, we have discussed the advantages of using profit objectives expressed in units of Average True Range. To quickly summarize that discussion, the ATR expands and contracts with the volatility of the market.

In a quiet market a profit objective of 2 ATRs might bring us a profit of $600. In a very volatile market, two ATRs of profit might be $1400 or more. By expressing our profit goals in terms of ATRs instead of fixed dollar amounts we make them highly adaptive to what is going on in the market in terms of variations in volatility.

However, what we will propose in this Bulletin goes a big step beyond that highly recommended procedure.

We have done a great deal of research using the Average Directional Index (ADX) that leads us to believe it is possible to vary our exit strategy to stay in tune with the trendiness of the market as well as the volatility.

By having a doubly adaptive profit-taking strategy we can happily accept small profits when that is the best the market has to offer or we can change the strategy and hold out for unusually large profits when those opportunities are known to be present.

Volatility, as measured by ATR, is obviously important but daily volatility does not always relate to direction and trendiness. It is quite possible that we can have lots of big ranges in a market that is merely going sideways or we could have small ranges in a market that is highly directional.

It is the correct combination of directional price movement and volatility that will allow us to maximize our profits in relation to what is happening in the market at any given time. For the best possible results, we want to combine our knowledge of ATR and ADX.

As we have described in previous Bulletins, ADX tells us the underlying strength of any trend. When the trend is strong the ADX will rise. When the trend is weak the ADX will decline. This is true in stocks as well as in futures. It also applies in downtrends as well as in uptrends. A rising ADX means a strengthening trend and a declining ADX means a weakening trend.


Let's go back to our earlier example where our plan was to take our profits at the 2ATR level. With this adaptation to the volatility, we are counting on the changes in volatility to produce large profits and small profits based on a constant target of two ATRs of profit.

However, we can go a step further and get even better results. Under our new plan, when the ADX is declining we will reduce our expectations and accept profits of only 1.5 ATRs instead of two.

And when the ADX is rising we will double our expectations and wait for profits of 4 ATRs instead of 2. Now we are adapting our exit strategy to both the current volatility and to the amount of trendiness in the market we are trading. As you might expect the difference in results is dramatic because our profit-taking strategy is doubly adaptive.


The logic of this strategy should be obvious. When the market is not trending strongly we improve our results by reducing our profit expectations and maintaining our winning percentage.

When the market is trending strongly we know it is time to abandon our small profit targets and time to take advantage of some unusually large profit opportunities.

The examples of 1.5 ATRs as a profit target in a non-rending market and 4 ATRs as a profit target in a strong trending market are just broad guidelines and we need to vary these parameters depending on the particular market and type of system we are operating.

Short-term systems may require smaller objectives and long-term systems may require much larger objectives.

We suggest you start with a 20-day ATR and a 14 to 18-day ADX. Play around with the units of profit and see what a dramatic improvement you can make in your trading results by combining ADX and ATR.


Good luck and good trading.


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#1 - November 15, 2018, 06:26:11 AM
« Last Edit: February 03, 2019, 06:54:00 PM by Admin »

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can this strategy have been tested to get maximum profit?
#2 - February 04, 2019, 08:13:54 AM

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I do not know what this technique or money management system is, but it is also interesting to learn by a beginner to add trading insight
#3 - February 05, 2019, 05:40:49 AM

  • Double Adaptive Average True Range Profit Objectives in Trading Systems_Emilio_Estevez
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I am still confused by what you are telling me, can it be simplified even less so that it can be easily understood, is this a technical one that uses a number of indicators which include the ATR indicator, I have seen the ATR indicator but in its use I still don't understand.
#4 - February 07, 2019, 08:08:08 AM

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I am still confused by what you are telling me, can it be simplified even less so that it can be easily understood, is this a technical one that uses a number of indicators which include the ATR indicator, I have seen the ATR indicator but in its use I still don't understand.
if according to my understanding of what was explained I captured this lesson to focus on ACX and ATR must have the same conditions in its movement, ADX measures the strength of the trend supported by ATR which measures the range will appear clearly in the direction of price movements in the market
#5 - February 09, 2019, 03:50:45 AM

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;D

I am still confused by what you are telling me, can it be simplified even less so that it can be easily understood, is this a technical one that uses a number of indicators which include the ATR indicator, I have seen the ATR indicator but in its use I still don't understand.
or better if you try by installing an indicator that is intended on the chart, so that it will be easier to understand this lesson, especially now that the market holiday is better, you can look back
#6 - February 10, 2019, 12:58:25 PM

  • Double Adaptive Average True Range Profit Objectives in Trading Systems_David_Boreanaz
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Having well-planned profit objectives is the best way to maximize closed-out profits.

The tendency is to either take profits too soon or too late and most traders tend to err on the side of taking profits too soon.

Taking a quick profit always feels good and helps to maintain our winning percentage because these "nailed-down" profits will never turn into losses. However, taking profits too soon can be one of the most costly of all possible mistakes.

It has been argued that profits in trading (especially in futures) are possible because the distribution of prices is not normal and is not a typical bell-shaped curve.

The tail on the right hand side tends to be surprisingly thick indicating that unexpectedly large profits are possible.

The opportunity for large profits comes our way more often than one might expect. However, if we went for big profits on every trade we would also be making a big mistake.

Major profit opportunities are the exception not the rule.


In very general terms there are two ways of having an advantage or "edge" in trading. One is to have gains much larger than losses and the other is to have more winners than losers.

To succeed as traders we need to do our best to maximize both the percentage of winners and the size of the winners. These two worthy goals appear to be mutually exclusive. If we take the quick small profits we can have a good winning percentage but we eliminate any possibility of more substantial profits.

However, if we fail to take some of the small profits they may well turn into losses.

Wouldn't it be ideal if we could know when it was best to take small profits and when it was best to hold patiently for big profits?

In previous Bulletins, we have discussed the advantages of using profit objectives expressed in units of Average True Range. To quickly summarize that discussion, the ATR expands and contracts with the volatility of the market.

In a quiet market a profit objective of 2 ATRs might bring us a profit of $600. In a very volatile market, two ATRs of profit might be $1400 or more. By expressing our profit goals in terms of ATRs instead of fixed dollar amounts we make them highly adaptive to what is going on in the market in terms of variations in volatility.

However, what we will propose in this Bulletin goes a big step beyond that highly recommended procedure.

We have done a great deal of research using the Average Directional Index (ADX) that leads us to believe it is possible to vary our exit strategy to stay in tune with the trendiness of the market as well as the volatility.

By having a doubly adaptive profit-taking strategy we can happily accept small profits when that is the best the market has to offer or we can change the strategy and hold out for unusually large profits when those opportunities are known to be present.

Volatility, as measured by ATR, is obviously important but daily volatility does not always relate to direction and trendiness. It is quite possible that we can have lots of big ranges in a market that is merely going sideways or we could have small ranges in a market that is highly directional.

It is the correct combination of directional price movement and volatility that will allow us to maximize our profits in relation to what is happening in the market at any given time. For the best possible results, we want to combine our knowledge of ATR and ADX.

As we have described in previous Bulletins, ADX tells us the underlying strength of any trend. When the trend is strong the ADX will rise. When the trend is weak the ADX will decline. This is true in stocks as well as in futures. It also applies in downtrends as well as in uptrends. A rising ADX means a strengthening trend and a declining ADX means a weakening trend.


Let's go back to our earlier example where our plan was to take our profits at the 2ATR level. With this adaptation to the volatility, we are counting on the changes in volatility to produce large profits and small profits based on a constant target of two ATRs of profit.

However, we can go a step further and get even better results. Under our new plan, when the ADX is declining we will reduce our expectations and accept profits of only 1.5 ATRs instead of two.

And when the ADX is rising we will double our expectations and wait for profits of 4 ATRs instead of 2. Now we are adapting our exit strategy to both the current volatility and to the amount of trendiness in the market we are trading. As you might expect the difference in results is dramatic because our profit-taking strategy is doubly adaptive.


The logic of this strategy should be obvious. When the market is not trending strongly we improve our results by reducing our profit expectations and maintaining our winning percentage.

When the market is trending strongly we know it is time to abandon our small profit targets and time to take advantage of some unusually large profit opportunities.

The examples of 1.5 ATRs as a profit target in a non-rending market and 4 ATRs as a profit target in a strong trending market are just broad guidelines and we need to vary these parameters depending on the particular market and type of system we are operating.

Short-term systems may require smaller objectives and long-term systems may require much larger objectives.

We suggest you start with a 20-day ATR and a 14 to 18-day ADX. Play around with the units of profit and see what a dramatic improvement you can make in your trading results by combining ADX and ATR.


Good luck and good trading.
It seems like this is a very effective strategy, if we can understand the principle of performance, but can you tell us how much profit can we make if we use it? I'm waiting for your next update about its development
#7 - February 11, 2019, 01:44:09 PM

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It seems like this is a very effective strategy, if we can understand the principle of performance, but can you tell us how much profit can we make if we use it? I'm waiting for your next update about its development
if in my opinion personally, to be able to get great results from this technique all return to ourselves what about the trading hours we are working on, as many hours of trading will increase the income
#8 - February 12, 2019, 02:11:03 AM

  • Double Adaptive Average True Range Profit Objectives in Trading Systems_Jon_Bon_Jovi
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a very good technical system, I will try it out in the market demo so that I get fiil first, if I say a lot of people don't understand, I will ask again here, please update later.
#9 - February 14, 2019, 08:02:47 AM

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honestly I don't understand the use of this technique, sir. can you give a more concrete example so that we traders can better understand in more detail about this technique and can use it in our trading plan, sir. thank you
#10 - February 14, 2019, 09:25:30 AM

  • Double Adaptive Average True Range Profit Objectives in Trading Systems_Emilio_Estevez
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if in my opinion personally, to be able to get great results from this technique all return to ourselves what about the trading hours we are working on, as many hours of trading will increase the income
the truth is, like looking for trading opportunities in the European and US market times, which often have very aggressive movements, such as today in the GU pair the session is moving very well. But I haven't managed to get the fill from the medium combined indicator. talked about before.
#11 - February 14, 2019, 09:37:46 AM

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the truth is, like looking for trading opportunities in the European and US market times, which often have very aggressive movements, such as today in the GU pair the session is moving very well. But I haven't managed to get the fill from the medium combined indicator. talked about before.
I also like to trade in European and American sessions because in this session there was a movement that made rapid movements and made a wide enough range so that it was very possible to be able to benefit
#12 - February 14, 2019, 10:31:29 AM

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to be honest I am still confused by this thread but what I know is this indicator measures the strength of a trend and can indeed be used in an NFP condition, but later I will learn more
#13 - May 18, 2021, 07:42:12 PM

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