Being the brainchild of J. Welles Wilder, ATR indicator Forex - Average True Range helps gauge the fluctuations in currency values. This was a technical instrument which was first put to use in the commodity market. But later on, traders began using it in Forex trading as well. Whether it was for analyzing the historical volatility or setting up trade entries or executions as per market scenario, it started gaining in recognition eventually.
If you are someone who is new to trading, then this is one Forex indicator you ought to try out. Here’s a post which will make you understand about it, and you shall find an interest using it. Read on!
A common MT4 indicator:
This is an indicator which comprises of 3 formulas for every specific time-period. The 1st one being High-Low, 2nd one being High – previous closing period and lastly Previous period close –Low. Experts state ATR is the average moving average chart over the chosen period length.
Average True Range consists of a singular fluctuating curve and experts state that even though it does not tell traders about price breakout direction, it can be included to closing price. Using it, a trader can purchase the very next day when the price is trading over that specific value.
Some ways to make use of ATR Indicator Forex:
• For determining profits:
EUR/USD is your currency pair, and you have seen just 70 pip average move within 14 days or so. As per this situation, you will need to rein your profit target. You can either wait for pip movement (or improvement), or you can use ATR for 14 day time-period and divide it into half. So the profit target figure would be 35 pips (a realistic and safer target).
• For filtering your trade operations:
When trading with GBP and USD, you see numerous signals coming up from different trade platforms. Simply making use of Average True Range, you can easily filter out the ones with the least amount of volatility. On doing that, you will be left with the ones which are high in volatility and guarantee big wins.
• For determining exit points:
Many don’t believe it to be true, but the fact is Forex indicators ATR, helps determine exit positions distinctly. There is a very popular technique which comes by the name of Chandelier Exit. This theory explains - when a currency reaches its highest high in that particular period, its distance with your Stop Loss (3-4 times) level receives a link to Average True Range. With that, you have an idea as where you ought to trigger your exit points.
Understanding these uses better with live practice:
For a 1st timer reading it, it would be a bit difficult to understand these usages clearly. So what traders should do is open a demo trading account (an MT4 account) and use ATR indicator Forex for such situations. With all existing live market data and real time trading environ, they will know how ATR serves their needs and how it makes trading so convenient for them. So find a broker offering MT4 (LiteForex is one place to start looking), sign up for an MT4 account and use ATR for your demo trading.
Wish you all the best!
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.