Average True Range - ATR

Some concepts

Low trading range: Candlesticks become smaller
high trading range: Small Candlesticks become bigger

ATR indicator Developed by Wilder. It helps to determine the average size of the daily trading range or how volatile the market is. ATR standard setting is 14. ATR as a sample ..(setting is 14)


Using ATR to

Produces buy or sell signals with confirming by some other indicators.
For example,
ATR's USD/JPY was increasing at from May 4, 2001 to 24 May 2001. It had the highest pick so far. The volatile of USD/JPY is high (Candle sticks had long bodies). At that time, USD/JPY was decreasing.

If you wanted enter long, you only waited until ATR made decreasing.
In chart show a place that you could enter long while USD/JPY 's ATR was desreasing (Candle sticks had short bodies and long wicks). Of course, you had to confirm with some other indicators combine with other time frames to enter the market in time.


Determint the best position for their trading Stop orders

When the market is volatile, traders look for wider stops in order to avoid being stopped out of the trading by some random market noise.
When the volatility is low, there is no reason to set wide stops.
Traders have consistency stops in order to have better protections for their trading positions and accumulated profits.
Let's take an example: EUR/USD and EUR/JPY pair. It couldn't be the best choice if you put a risk 2-5% of the account for for both because EUR/USD moves on average 162 pips a day while EUR/JPY makes 198 pips daily. Puting Equal stop lost for both pairs just couldn't make sense.

How to set stops with Average True Range (ATR) indicator

Look at ATR values and set stops from 2 to 4 time ATR value. For example, if we enter Short trade and choose to use a 2-ATR stop, then we take a current ATR value, for example 100, and multiply it by 2. 100 x 2 = 200 pips (A current Stop of 2 ATR)

About a breakout/breakdown system