The Average True Range (ATR) is an indicator that measures the volatility of a security. It was developed by J. Welles Wilder in his book, “New Concepts in Technical Trading Systems”. The ATR is primarily used to measure market volatility, but it can also be used to spot potential trend reversals and breakout levels. The ATR is calculated as a moving average of the true range, which is the absolute value of the difference between the high and low price of a security over a period of time. The ATR can be used on any time frame, but is most commonly used on daily charts. In this blog post, we will explore how to use the Average True Range indicator MT4 in your trading. We will cover what the ATR is, how to calculate it, and how to use it in your trading.
What is the Average True Range Indicator MT4?
The Average True Range indicator (ATR) is a technical analysis indicator that measures the volatility of a financial instrument.
The ATR is calculated as the average of the true ranges for a given period. The true range is the greatest of the following:
· The current high less the current low
· The absolute value of the current high less the previous close
· The absolute value of the current low less the previous close
The ATR has many uses, including providing traders with information on stop-loss levels and exit strategies. It can also be used to identify periods of high and low volatility.
How to Use the Average True Range Indicator
There are a few different ways that traders can use the Average True Range indicator when trading the markets. One way is to simply use the ATR as a measure of volatility. The higher the ATR, the more volatile the market is and vice versa. This can be used as a way to determine whether to enter or exit a trade.
Another way to use the ATR is to look for breakout trades. When the ATR is rising, it means that there is increasing volatility in the market and this can be used as a signal to enter a trade. Conversely, when the ATR is falling, it means that volatility is decreasing and this can be used as a signal to exit a trade.
Finally, traders can also use the ATR as a trailing stop loss. This means that they will place their stop loss at a certain distance away from their entry price, based on the ATR reading. For example, if the ATR reading is 2, then the trader may place their stop loss 2 pips below their entry price.
Pros and Cons of the Average True Range Indicator MT4
There are a few key things to know about the Average True Range indicator. Here are some pros and cons to help you make your decision about whether or not to use this tool in your trading strategy.
The Average True Range indicator is a very popular tool among traders. It is a volatility indicator that can help you measure the amount of risk in a given trade. The ATR is calculated by taking the average of the true range over a given period of time. The true range is the highest of the following: current high minus current low, current high minus previous close, or current low minus previous close.
One pro of using the ATR is that it can help you manage your risk. If you know how much risk you are comfortable with in a trade, you can use the ATR to set your stop loss order accordingly. This can help you avoid getting stopped out of a trade prematurely.
Another pro is that the ATR can help you time your entries and exits. When markets are more volatile, the ATR will be higher, and vice versa. You can use this information to enter trades when markets are more likely to move in your favor, and exit when they are becoming more risky.
One con of using the ATR is that it is a lagging indicator. This means that it will only tell you how much risk was in a trade after it has already happened. This can be frustrating if you are trying to predict future market movements.
Average True Range Indicator MT4 Trading Rules
The ATR indicator is a stop loss placement indicator. It is simple to trade with the ATR indicator.
When the ATR indicator is rising, it means that the price range is expanding. When the ATR indicator is declining, it means that the price range is contracting.
Here are some simple rules to follow when trading with the ATR indicator:
When ATR is relatively low, look out for possible breakout of support or resistance.
Place buy stop or sell stop orders in anticipation of a breakout as we can expect volatility ahead.
The default settings for this MT4 ATR indicator are 14 days period. You can use higher periods as well if you want to filter out more false signals.
Average True Range Indicator MT4 Conclusion
The Average True Range (ATR) indicator is a useful tool for measuring market volatility. It can help you identify potential trading opportunities and make more informed decisions about when to enter and exit trades. While the ATR is not perfect, it is a helpful indicator that can give you an edge in your trading.
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