Average True Range Explained
Originally developed for commodities, the Average True Range (ATR) indicator is a versatile tool used across various asset classes, like forex pairs and more. ATR helps traders gauge market volatility and make informed decisions, as ATR is essentially a moving average of a market's true range.
For traders, this is essential information because it explains how much an asset “moves on average” based on specific starting and ending points selected by the trader. This way, you can be prepared for specific moves when they happen. For example, if a market typically moves 20 points per day, and it has already moved 25 points, you might reconsider trading based on another indicator's signal.
To find the true range, you need three values:
1. Current high minus current low
2. Current high minus previous close
3. Current low minus previous close
The true range is the greatest of these three values. ATR typically averages the true range over the last 14 sessions, but this can be adjusted based on your trading strategy and personal preference.
How do you trade with ATR?
ATR is a key indicator of market volatility, aiding traders in evaluating opportunities and being a helpful component in setting stops and limits. ATR shows how much a market usually moves in a day; therefore, ATR can help set realistic profit targets and stop losses. For instance, if a market normally moves 20 points per day, aiming for a 50-point profit might be unrealistic, depending on your strategy.
By understanding and utilizing ATR, traders can better navigate market volatility and make more informed trading decisions.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
-- FOREX.com
For traders, this is essential information because it explains how much an asset “moves on average” based on specific starting and ending points selected by the trader. This way, you can be prepared for specific moves when they happen. For example, if a market typically moves 20 points per day, and it has already moved 25 points, you might reconsider trading based on another indicator's signal.
To find the true range, you need three values:
1. Current high minus current low
2. Current high minus previous close
3. Current low minus previous close
The true range is the greatest of these three values. ATR typically averages the true range over the last 14 sessions, but this can be adjusted based on your trading strategy and personal preference.
How do you trade with ATR?
ATR is a key indicator of market volatility, aiding traders in evaluating opportunities and being a helpful component in setting stops and limits. ATR shows how much a market usually moves in a day; therefore, ATR can help set realistic profit targets and stop losses. For instance, if a market normally moves 20 points per day, aiming for a 50-point profit might be unrealistic, depending on your strategy.
By understanding and utilizing ATR, traders can better navigate market volatility and make more informed trading decisions.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
-- FOREX.com
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