ATR is a commonly used indicator in Forex and CFD trading, it measures volatility and takes into account gaps. It is a useful tool for traders to help them enter and exit trades, as it can adapt to sharp price moves or consolidation areas.
ATR TOOL can be calculated using several different periods such as daily, weekly or intraday, however 14 days is usually the most common period used.
ATR – Average True Range
The average true range (ATR) is a technical analysis tool that measures market volatility. It can be used to identify entry and exit points for trading.
It is a popular indicator among commodity traders, but it can also be used in other financial markets that show volatility, such as stocks and indices. It was first developed by J. Welles Wilder in 1978.
ATR reflects the volatility of a security over a specific period of time, usually 14-day periods. However, analysts may use shorter or longer periods depending on the duration of the trading chart.
What is ATR?
ATR is a technical analysis indicator that shows the average volatility of a security’s price movement. It was introduced by J. Welles Wilder in his book “New concepts in technical trading systems.”
ATR values are primarily calculated on 14-day periods, but traders can use shorter or longer time frames to determine possible price targets and trailing stop losses.
In the case of a stock, ATR values can be used to spot if prices are about to break above (or below) a key consolidation pattern, support or resistance level, previous swing high, or swing low.
In general, large or increasing ATR ranges indicate enthusiasm/commitment in a stock’s direction, while decreasing or narrower ranges suggest waning interest. The ATR can also be used to identify false breakouts, when a market temporarily breaks above (below) a key consolidation pattern, support or Resistance, or previous swing high or low, but immediately changes direction.
How to Calculate ATR
ATR is a technical indicator used to measure market volatility. It was originally developed by J. Welles Wilder for commodities, but it’s now popular among traders across all asset classes.
ATR can help you plot profit targets and determine whether you should try a trade. It also allows you to identify areas of support or resistance based on your investment’s historical volatility.
Using ATR can also help you avoid selling your investment too soon under changing market volatility. This can happen if you set your stop loss too close to the current price and miss the opportunity for a profitable trade.
ATR can also be used as a trailing stop loss to help you take advantage of sharp price moves or consolidation zones. Unlike fixed dollar-point or percentage stops, ATR will adapt to volatility and allow you to catch abnormal price movements in both directions.
How to Use ATR
The ATR is an excellent tool for identifying market volatility. In fact, it’s a favorite among veteran traders and is known to help predict breakouts and breakdowns in pricing behavior.
ATR is also an important indicator to keep track of as you watch a chart. It is a good idea to use it in combination with other technical indicators, such as Bollinger Bands and the Relative Strength Index (RSI).
When prices consolidate over a period of time, the ATR will print low values. This is a sign that the market is experiencing low volatility and a breakout could be in the works.
Traders can then plan to take advantage of the breakout move by entering at the earliest possible point in the new trend. ATR can be used to identify the range in price during this period and the strongest support and resistance levels.