Average True Range Indicator Guide for MT4/MT5
The ATR forex indicator is an average true range that was originally developed for commodity trading on MT4 charts. This MetaTrader indicator does not provide tendency indications. Yet it only provides the volatility degree of the trading instrument. Because intraday forex traders do not seek currency trends in isolation. But, they seek trading volumes behind trends also. In fact, awareness of the exchanging volume permits chartists to filter out minor movements. Consequently, they remain attentive to the major movement using an ATR strategy. That is why prominent forex traders are shifting toward the value of the average true range ATR indicator for MT5 to get market volatility signals. Moreover, the interpretation of this forex tool is so simple. For these reasons, the ATR indicator for Tradingview and the average true range notion has become necessary tools to detect price volatility and place stop-loss orders on famous trading platforms.
Average True Range Indicator FAQ
What is ATR indicator ?
The ATR forex strategy exploits a continuous line below the price chart that was developed by Welles Wilder. It helps traders to forecast how much the price of a security might move in a precise timeframe. Also, it determines the volatility intensity of a financial asset, on average, during a specified period. To clarify, this indicator estimates the trading volatility of a trading asset by examining the range of price for a defined period (number of candles). But, it gives no indication about the trend. Just market volatility!
So the Average True Range indicator does not consider the direction of the price. Rather, it measures the intensity of this price movement and checks whether there are price gaps. In other words, it examines how far a price movement may persist. In short, the forex ATR strategy examines currency volatility, taking into account all gaps in the price evolution.
It is easy to compute the ATR value of the indicator. In fact, it is a series of true ranges that must be computed over a specified period. To explain, the True range value is extracted from one of these three methods. As result, the True Range is simply the highest (Max) value of the following three calculations:
- First method: Difference between current high and current low
- Second method: Difference between current high and previous close
- Third method: Difference between current low and previous close
But, note that we consider the absolute (Abs) value. So, it does not matter if it is positive or negative. To conclude:
- True Range = Max [(Current High, Current Low); Abs(Current High, Previous Close); Abs(Current Low, PreviousClose)]
Indicator Formula
The average true range is simply the average of computed true ranges over the specified number of candles (period). But, we will discover how to compute the current ATR value using previous values of this indicator similar to daily_ranges.
By default (period of 14 candles) the ATR calculation is as follows:
- Current ATR = { [(Previous ATR x 13) + Current TR] } / 14
Otherwise, we will consider a period of N candles. Thus, the general ATR calculation is as follows:
- Current ATR = { [Previous ATR x (N – 1) + Current TR]} / N
On the one hand, if the ATR value is low, then it is an indication of Low price volatility. Consequently, we have a sideways price movement. In other words, there is market consolidation.
On the other hand, when the ATR value is high, it is an indication of High market volatility. As a result, we have a significant price movement. That is to say, there is a trending market. But, that price movement is irrespective of the market movement.
Using the Average True Range indicator, forex traders can adjust the ATR period to their trading strategy. Also, they can adjust the applied timeframe to the Average True Range ( ATR ) indicator.
From one part, Short periods and timeframes will afford more volatility alerts to intraday traders.
From another part, Long periods and timeframes will produce fewer volatility signals to swing traders.
Note that there are no best settings for the ATR period. To clarify, While editing the ATR settings, it is essential to examine whether your modifications are really developing or worsening your trading outcomes.
So, the setting that best suits your own trading style and technique are the best settings. In other words, try to test different settings. Subsequently, monitor trading results. Obviously, the Best settings provide you with the best results.
How to calculate take profit and stop loss based on ATR ?
Take profit
In this case, we will use the ATR to judge how far the price is anticipated to move. This is done based on a daily timeframe and a period of 14 candles. Thus, based on default settings. To clarify, we will use the ATR information in order to judge how far away is our profit target.
In our example, there is an ascending ATR indicator that displays a value of (97.7) pips. Considering an ATR multiplier of 1.5 we believe that the price movement will not exceed 146.55 pips (97.7 x 1.5) during that day. After that, the market would be exhausted.
Stop loss
Considering an ATR multiplier of 1 we will set a stop loss order of ATR pips. Thus,97.9 pips below the previous closing price.
Example 1
In this example, there is the intraday (H4) EURUSD chart.
From one part, there is a strong resistance area. Swing_Highs (Lower_Highs) are confirming that a potential downtrend will probably occur.
From another part, the increasing ATR indicator predicts high volatility in MT4 charts.
In conclusion, shorting the EURUSD currency pair would capture the potential abnormal earnings.
Example 2
In this example, there is the intraday (H4) AUDCHF chart.
On the one hand, there is a strong support area. Swing_Lows (Higher_Lows) are affirming that a potential uptrend will probably happen.
On the other hand, the decreasing ATR indicator predicts high volatility on the MT4 chart.
In short, going long on the AUDCHF currency pair would catch the potential abnormal profits.
How to use it ?
Forex Traders prefer to trade the Average True Range MT5 indicator in combination with another trend indicator. Because it is only a volatility indicator and the direction of the trend is uncertain. For example, Using it along with the Simple Moving Average. To explain, the ATR confirms the volatility and the MA confirms the direction of the trend. Consequently, traders detect abnormal forex price change along with their direction thanks to the ATR indicator for Tradingview.
Method 1: Intraday ATR percentage stop loss
An intraday trader has better consider a lower %ATR stop loss level. Ordinarily, intraday traders use 10% or 20% as %ATR stop loss levels. These stop loss levels are placed below the entry price in a long position. Alternatively, they are set above the entry price in a short position.
Method 2: Swing ATR percentage stop loss
A swing trader should consider a higher %ATR stop loss level. Usually, swing traders use 50% or 100% as %ATR stop loss levels. Consequently, long-term traders use higher %ATR stop loss levels. Moreover, they use higher take-profit levels.
Download ATR Indicator for MT4
ATR indicator for MT4 is an average forex true range indicator for MetaTrader 4 charts and the best indicator for mt4. An increasing MT4 ATR indicator suggests higher market volatility. In fact, the candle range gets larger also. To explain, high ATR values usually result from a sharp exchanging activity. But, they are unlikely to be maintained for long periods. Thus, the higher the ATR value of this MT4 average true range indicator, the more powerful is the trend.
Download ATR Indicator for MT5
ATR Indicator for MT5 is a forex average true range indicator for MetaTrader 5 charts. A low ATR value of the MT5 indicator suggests a series of sideways movements. Consequently, there is low volatility explained by market consolidation. First, it can be a consolidation phase just before trend continuation. Second, it could be a sign of trend reversal. The combination of the ATR indicator for MT5 with other trend tools may reveal if the price movement will sustain or reverse after this period. Thus, the lower the ATR value of that MT5 indicator, the weaker is the trend move.
Conclusion
The ATR indicator for MetaTrader is a highly employed volatility strategy like BBands, KCs, DCs, and MA_envelopes. A low ATR value stipulates that the price is narrowing. Conversely, a high value of the ATR indicator for Tradingview stipulates that the market is trending. On the one hand, no information about the price direction is provided by this forex toll. Contrarily, it can be helpful with bullish or bearish reversals on charts. To clarify, A growing ATR value after a starting potential reversal could be utilized as a strong confirmation signal. Moreover, it is very useful to place stop loss orders using percentage ATR grades.