[Evidence] What is ATR? Clear explanation using MT4's ATR
Shirou here!
This time, for the first time I’m seeing ABUATR about the comprehensive signal developed by Abu, the Prime Combo Signal.
What is ATR?
For those curious, this is a review and explanation of ATR, as it’s also for me.
What ATR is: a volatility indicator
Average True Range, in other words the average range the price actually moved.
Basically, it displays the value obtained by summing the last 14 candlesticks and dividing by 14.
MT4 ATR.
The basic idea isa volatility indicator
If it’s low, volatility is small; if high, volatility is large.
Two basic uses
Take profit and stop loss
The basic use is, first
take profit and stop loss
are used.
For example, if you apply ATR to a daily chart, you’ll get values like this (default period is 14).
It shows 1.1119. This meansthe daily average movement is expected to be 111 pipsup or down.
Suppose the candle started moving and has already risen 11 pips before you enter long.
Then,
- since there are 100 pips left for the movement to stop, this should be your take-profit point
- or you could set an 11-pip stop loss
This is what you could think.
The reason for multiplying by 3–5 is to avoid SL hunting when using the raw average for take profit/stop loss.
Identifying the trend
GBPCHF, 5-minute chart.
Candlesticks are flat, but ATR is decreasing.
This means,
price movement is becoming smaller, i.e., volatility is decreasing
and you can decide not to go long here.
In this case, the long perspective ends and the market tends to enter a range.
Summary
ATR is a volatility indicator that can be used for take-profit/stop-loss points and for identifying trends.
Once I start using ABUATR as well, I’ll strive to understand it more deeply.