Average True Range (ATR) indicator. Since the ATR indicator gives the trader information about price ranges, traders use this information to identify the volatility of the market. Specifically, how to use, you refer to below.

Method 1: Use ATR as a tool to measure the volatility of the market.

When the ATR is increasing (number 1 in the illustration), this means that the volatility of the price will increase, in particular, the trend will go strong (either up or down). Conversely, if the ATR decreases (number 2 in the illustration), the price will go sideways.

Because traders always say "trend is your friend" (the trend is your friend), when using ATR, traders will quickly realize where you are, what is your enemy (sideways).

Method 2: use ATR to calculate profit taking points.

Traders will use ATR to predict a possible price distance ahead.

  1. At the time the candle is marked in the figure, the ATR is 125 pips (black line in the figure).
  2. A trader enters a buy order at the open of the marked candle.
  3. Take-profit point is placed at the price level 125 pips away from the entry point. The price then hit the correct take profit point at the highest price of the day.
Method 3: Use ATR to find your stop loss.

Traders will use ATR to find the right stop-loss because it will give us the maximum distance the price can reach, helping to prevent market fluctuations that will often lead to Trader being swept by the market. stop-loss (market stop hunt).

The usage is similar to take profit place, you will rely on ATR signals to place your stop loss x pips away from your entry.

Adjust cycle parameters to adjust the sensitivity of the ATR.

ATR has a default period of 14. However, you can change this default setting.

The illustration above shows the ATR example with a period of 7, we see that the ATR gives a highly sensitive signal compared to the price chart.

With a period number of 28, ATR results "smoother" but very slow signal compared to the price chart.

When changing the number of ATR cycles, it is most important that you see how this will affect your trading. Will increasing the sensitivity give you better take profit scores? Are you a short term trader?