What is Average True Range (ATR)?
Average True Range (ATR) was developed by J. Welles Wilder Jr. It is used to measure the price volatility, showing how much the price fluctuates compared to the average during a given period. ATR calculates this by taking the average of the true ranges from the past 14 candlesticks.
How to use Average True Range (ATR)
How to use: You can activate it on MT4 by going to Insert > Indicator > Oscillator > Average True Range.
For the settings, you can use the default period of 14 that the system provides.
When you open the ATR, a red line will appear like in the picture. We use that line to observe the price volatility.
How to trade using the Average True Range (ATR)
Here’s the English translation:
The way to use it is by looking at the red line. When the price chart shows high volatility, the line will rise sharply like tall peaks. However, it only indicates volatility and does not show the price direction or whether the trend is up or down.
For example, when the ATR line rises sharply, it means the price is highly volatile during that period. Conversely, if the red line fluctuates only slightly and remains low, it means the price volatility during that time is low, also known as a sideways market, where there is no clear uptrend or downtrend.
Here is the English translation:
Traders use ATR to set Take Profit (TP) and Stop Loss (SL) levels by looking at the current ATR value. For example, if the ATR value is 2.52 (volatility of 252 points):
How to calculate Take Profit:
(ATR × 2) + current candle’s open price = TP
(2.52 × 2) + 1962.20 =
TP = 1967.24
How to calculate Stop Loss:
(current candle’s open price – ATR) = SL
1962.20 – 2.52 =
SL = 1959.68
You can adjust these calculations to fit and customize your own trading strategy.
