The ATR indicator (average true range) is an effective tool that measures how much a price moves in a specific time frame. It also helps traders find potential breakouts and define stop-loss orders based on their risk tolerance levels. The indicator can be used in a wide variety of trading strategies, making it an essential tool for any trader.
ATR was developed by Wilder in order to make it easier for traders to assess volatility. He found that using the previous day’s high and low did not provide an accurate figure for how much a price had moved in a single trading session. However, by using the average of these values over a number of days, he was able to create a more accurate measure. This indicator is used to calculate the actual average range of a price over a given period and is often displayed as a line on the price chart.
Traders use the ATR to help them make trade decisions. For example, if the ATR is high, it could be an indication that there is a lot of price movement taking place in the market and that there may be a potential opportunity to profit from this. Conversely, if the ATR is low, it may suggest that the market is not moving much and that there might be less risk involved in opening a trade.
In addition to identifying potential breakouts, the ATR can be helpful in finding out when there are price gaps in the market. For instance, if a gap opens up that is bigger than the ATR, it could indicate that the price has moved more than normal and that there may be a chance for a continuation move.
The ATR is an effective tool to help traders determine whether a trend is likely to continue, and it can be combined with other indicators to improve the reliability of trade signals. For example, when the ATR is increasing, and a bullish trend is taking shape, it is important to look for a confirmation that this is the case by looking for other technical indicators that confirm the trend.
ATR is a simple yet effective indicator that is easy to interpret and can be useful in many different ways for traders of all experience levels. Understanding how to use this indicator, it can be an effective tool to help traders make informed trading decisions and potentially increase their profits.
