Average true range average true range atr. What is ATR in trading and how to calculate it? Using an absolute value

In this article I would like to draw attention to one of the most simple volatility measurement methods- calculation of volatility using ATR indicator.
I would like to point out that volatility allows us to always work in the rhythm of the market helps to correctly install stop loss and take profit size.

Average True Range (Average True Range, abbreviated ATR) is an exchange technical indicator reflecting volatility asset movements. Wells Wilder became the author of this indicator and described it in the book "New Concepts of Technical Trading Systems". At the moment, ATR is actively used by traders and is used in many trading strategies.

O main meaning indicator ATR is to define average range of price changes for a certain period of time.

Indicator features:

Initially, Wilder defines the True Range (TR), which is defined as the maximum of three values.

• The difference between the current high and the current low;
• the absolute value of the difference between the current high and the previous close;
• the absolute value of the difference between the current low and the previous close.

If the range of fluctuations within the period (the difference between the maximum and minimum) is large enough, then most likely the TR value will be calculated based on it. If the difference between the high and low is small enough, then the other two methods above are most likely to be used to calculate TR. The last two options are usually obtained if the previous close is greater than the current high or the previous close is lower than the current low. The last situations - price gaps or gaps (gaps) are quite rare in Forex and mostly happen on weekends if serious news comes out during the weekend.

Average True Range (ATR) derived from TR by averaging over one of the methods - simple average, exponential or other.
Using the ATR indicator
Reflecting your purpose Average True Range indicator, as a rule, reaches high values ​​at the time of a strong growth or fall of an exchange instrument, when either panic sales or active purchases occur. At this time, the volatility on the stock exchange is maximum.
Low values ATR indicator correlate with long periods of lateral, neutral movement, which are typical for the market at the time of waiting for important news or the absence of large capital.

ATR can be used in the same way as other volatility indicators. The forecasting principle is as follows: the higher the ATR value, the higher the volatility, and hence the probability of a change in the trend movement; the lower the indicator value, the weaker the direction of the trend.

Typically, a 14-period ATR is used, which can be calculated on both intraday and daily or weekly and even monthly data.

Extreme values ​​of the indicator often indicate turning points and or the beginning of a new movement. Like other indicators showing volatility, such as p Bollinger Bands, Average True Range cannot predict the direction or duration of movement, it only indicates the level of activity.

ATR calculation formula:

ATR = Moving Average(TRj, n),
where
TRj = maximum of the modules of three values
|High - Low|, |High - Closej-1|, |Low - Closej-1|.

The true range is the largest of the following:
- the difference between the current maximum and minimum;
- the difference between the previous closing price and the current high;
- the difference between the previous closing price and the current low.
ATR is the moving average of the true range values.
Main disadvantages:

As disadvantages, one is usually indicated - with a large period, the ATR may lag, indicating not the current but the past volatility.

Let's look at this with an example. Currency pairs EUR/USD and GBP/JPY. Question: Will you set stops for both currency pairs at the same distance? Answer: of course not.

If you can risk 2% of your capital in both cases, it would be wrong to set stops for each of the pairs at the same distance. Why? Yes, because the EUR/USD pair moves on average 120 pips per day, while the GBP/JPY pair moves 250-300 pips. Therefore, it makes no sense to place stop orders at the same distance for these essentially different pairs.

How to place stop orders using the ATR indicator
Look at the ATR value and set your stops at two or three ATRs. For example, if the ATR value was 100 when you entered the market and you decide to place a stop order at 2 ATR, then you need to multiply 100 by 2. Therefore, you need to place a stop order at a distance of 200 pips from entry point (place stop at 2 ATR).

Average True Range indicator, ATR(Average True Range) is a simple classic indicator that determines market volatility based on price activity over a certain time period. The tool was created back in 1978 by a well-known theorist D. Wilder, who is also the author of such popular technical analysis tools as , and .

The first description of ATR was presented in the book " New Concepts in Technical Trading ».

Description and settings of ATR

The calculation of the ATR indicator involves determining the average value of the true range. You can do this in the following ways:

• find the difference between the current maximum and minimum price;
• find the difference between the closing price of the previous day and the current high;
• find the difference between the current low and the previous close.

From the obtained values, the largest is usually selected, and on its basis a moving average for the selected period is built. This is what a trader focuses on when analyzing the state of the market. However, you do not need to manually calculate anything, since the ATR indicator is built into almost all modern trading platforms, including .

To build an ATP chart, it is enough to set only one parameter - the time period. The default is set to 14 , but the user can always change it, depending on their own preferences. The choice is determined by the characteristics of the monitored assets.

For example, if their volatility is high enough, it is worth increasing the period, thereby reducing the sensitivity of the indicator, but improving the quality of incoming signals. Reducing the interval will allow you to respond faster to price fluctuations, but will increase the number of false messages.

Video - ATR indicator

How to use the ATR indicator

The main signal that the ATR indicator generates is a change in the state of volatility.

The higher the line it displays, the busier the market, and vice versa. An increase in the curve indicates an increase in this indicator, a decrease indicates a decrease. Using the indicator makes it possible to divide the market chart into several sections with different volatility in order to develop strategies in case of sudden price transitions from one state to another.

It is important to remember that the Average True Range line does not show the direction of price movement. Yes, the vectors often coincide, but this is not evidence that can be accepted without additional verification.

Some traders express the opinion that the indicator can also be used to determine the trend reversal points that occur when the curve is at extreme values. It is probably possible to use the ATR indicator in such cases, since some positive statistics still exist, but it is inefficient to use it to solve such problems. There are much more reliable and practical tools that work perfectly with the indicator in one bundle.

It turns out that the only purpose of the ATR is to display the level of volatility? In principle, this option is quite enough, but the capabilities of the indicator are not limited to this. The information received from him is often very useful when setting stop losses. The main reason

The trader in this case is the fact that the ATR indicator displays the maximum allowable range of fluctuations in the period under consideration, therefore, a pending order comparable to its value will not be disrupted by a random noise burst with a high degree of probability.

Usually, in order to determine the stop loss placement point, the current ATR indicator in points is added/subtracted from the extremum of the closed candle. Stop is set at a distance equal to the received number, mainly on lower timeframes. Similarly, you can use the indicator when placing take profits. Taking into account the fact that, unlike stop losses, the latter do not minimize the possible loss, but maximize the potential profit, it is recommended to place them on higher timeframes. Placing orders according to the above principle is not a panacea for any price fluctuations. Noise impulse can always disrupt stop loss or take profit.

If this happens, it is better not to get hung up on studying the reasons, but to start looking for new entry points.

Conclusion

Perhaps the only serious drawback of the ATR indicator is the delay in determining the state of the market. This is especially pronounced when working at long distances, when the trader's attention is often offered not to the current, but to the past volatility. The inability to determine the direction of the price vector, reversal points and divergence points with high accuracy cannot be attributed to minuses on the simple grounds that this is not part of the main responsibilities of the tool.

With its own main function - displaying the level of volatility for a certain time period - the indicator does an excellent job.

A nice addition is the ability to use the ATR indicator as an assistant when setting take profits and stop losses. As practice shows, the Average True Range values ​​are an excellent guide for insuring trades on any timeframes. Another advantage of the indicator is its presence in all popular trading terminals.

The greatest effect of exploitation is obtained when it becomes an auxiliary tool for other technical indicators.

If you find an error, please highlight a piece of text and click Ctrl+Enter.

Market volatility can sometimes work against a trader. In order to exclude periods of low volatility in the market, the ATR indicator is ideal.

ATR (from the English abbreviation Average True Range - the true average range) is an indicator of technical analysis that shows the volatility of the market at the present time. How to use the ATR indicator to increase profit from trade to trade, how to install it in the terminal and what profit it can provide - learn from our guide!

Click "explore" right now to get a free guide and learn how the indicator works.

The ATR (also Average True Range) indicator was developed to easily determine the volatility of Forex currency pairs. It is the calculation of market volatility that is the main task of this indicator. ATR itself refers to technical analysis indicators.

How the ATR indicator works

ATR indicator- a standard Forex indicator, which is installed in almost all trading platforms, including MetaTrader4. The indicator was developed by J. Wells Wilder, who presented it to the public in 1978. Many Forex traders initially took it coldly, but over time it gained wide popularity in the Forex currency market. The Average True Range indicator in English means "true mid-range".

This indicator allows the trader to most accurately predict the future price change so that the trader independently calculates the places where Stop Losses and Take Profits should be set. However, the indicator will not be able to calculate the direction of the trend line. The ATR indicator has the form of a moving average, and it is displayed in a separate MetaTrader4 trading term window.

Explore »

What is a moving average?

The important point is the fact that the ATR indicator constantly tends to rise with a strong price movement no matter where she goes. For example, if the price is in a downtrend - the indicator goes up, in an uptrend - it's still up.

What does it mean? The description of the ATR indicator tells us that if it falls, then the market volatility decreases. We can conclude that if the indicator is very low, then, accordingly, there is practically no volatility. The price is preparing for the coming spurt. I remind you that the indicator itself cannot show the direction of price movement.

Click the button to go through the step-by-step guide to "ATR" and master the indicator in a few simple steps Explore »

Using the ATR indicator

How to use the ATR indicator? After you have set the average level of the range, a buy signal will be generated exactly at the moment when the Average True Range indicator breaks it from the bottom up. The resulting one should match both the lower timeframes and the older ones. Do you want to receive additional signals? You can safely use ATR in conjunction with the CCI indicator.

An indicator is used, as mentioned above, in order to obtain information about a future price change in order to later set the necessary Stop Losses and Take Profits. After you have received the necessary data from the indicator, you need to open a position. Next, you should place all Stop Losses on a par with the price extremes that are presented on the Forex chart. Take Profits set at resistance/support levels. The data provided by the Average True Range indicator will help you bypass all market "noises"(short-term price movements). Achievement at the price of the exposed Stop Loss means an increase in the price range. After that, you need to close all losing trades. This is how the Forex ATR indicator helps you set Stop Losses as far as possible, avoiding market noise. The indicator provides an opportunity to clearly analyze the ongoing volatility of the trading instrument, as well as to identify the size of the opening of the transaction.

The Average True Range indicator is very sensitive to changes in time periods. We have already found out that the standard for it is 14 days. If you set the value lower, then the indicator itself receives less data for its work. What does this mean? ATR indicator becomes the most sensitive to any price maneuvers.

If you increase the value, you will notice how the moving average of the indicator becomes smoother.

The description of the Average True Range indicator makes us understand that it has a number of disadvantages. One of them - belatedness. It is connected with the use of a moving average. If the ATR period is long, then it may indicate the past volatility of the market, and not the current one, which is what we need. Therefore, it is recommended to use it in tandem with various trading instruments, for example, patterns GBP/JPY.

Click the button to go through the step-by-step guide to "ATR" and master the indicator in a few simple steps Explore »

What conclusions can be drawn? The ATR indicator will not help you in forecasting, it is designed to measure volatility. You will not know where the price will go - up or down, but, nevertheless, it will help you become a successful trader, show you where and when to place Stop Losses, as well as Take Profits. Happy trading!

So often a good trading plan is ruined by sub-optimal execution. Sometimes we spot a big trend with strong fundamentals only to join in the end. Sometimes we try to find the best place to enter and the price continues its merry way without us.

Sometimes we do get on board a big move and hold the trade, waiting for a multi-day or multi-week move, and end up seeing the price bounce back, part or all of the move that went our way.

Very disappointing situations. In this article, we will look at how a simple indicator based on Average True Range can help us solve this dilemma in a logical and consistent way. We will find out how ATR can help us:

– More free to enter into transactions

– Confidently manage transactions

– Systematically measure trend strength

What is ATR?

Simply put, Average True Range is a measure of volatility. It tells us how far, on average, the price will move in a certain period of time.

As with any other indicator, it is important to understand how it works. Let's start with True Range. The true range takes into account the range of the current period (Hi - Lo), and also compares it with the close of the previous period.

TR (true range) = maximum value of:

High minus low of the current period

Previous close minus current low

Current high minus previous close

The "Average" True Range is the exponential moving average of the previous 20 (in our case) True Ranges:

Current 20-period ATR = [(Previous ATR x 19) + Current TR] / 20

And after this brief trip into the world of mathematics, it's nice to know that most brokers now include ATR in their charting packages as a standard set of indicators, so you don't have to do all this work yourself.

Using ATR to manage entries and exits

We now know that ATR is a measure of volatility. How can this be useful? Here is an example:

The current daily ATR for USDCAD is now 0.0114, which is 114 points. So we know that the price has moved 114 pips a day on average over the last 20 days. Let's say that today we want to sell this pair at the opening of the London session:

By 7:00 AM GMT, the price had moved only 27 pips from high to low, only 23% of the daily ATR. So price has a lot of room to move if the market intends to move on.

If the market wants to make a 100% ATR today, it could potentially move the pair to 1.2647 (Asian high - 114 pips), or if it enters a correction, it could lead to 1.2838 (Asian low + 114 pips). Thus, for each day we have a measure of how much - at best - the price can go.

But the price does not always pass 100% ATR. More often than not, there are cycles of low and high volatility. On average, price tends to move around 70% of its 20-day ATR. In our case, this is 70% of 114 points, which is 80 points. So this means that potential target for intraday selling or partial closing of a medium-term short logically it could be 1.2681 (Asian high - 80 points).

This also means that if we are looking for an entry and the price has already moved more than 50% of the 20-day ATR, then there is little room left. This is very important, especially for intraday trades, because the price needs to have room to move.

For example, the AUDUSD pair recently moved higher when the RBA announcement was less dovish than expected. Waking up at the beginning of Europe, traders saw this picture:

Many traders were looking for another boost from London on this news, which is usually logical given that central banks and non-farm payrolls have a big impact on market psychology.

But don't forget that trading is a game of probabilities. So what is the likelihood that the price will be aggressively pushed higher? Also, if you go long on the London open, where is your stop?

Where should the potential target be to take at least 1R? Given these trade management considerations, the trade looks low-probability.

Now, going back to a better example on USDCAD, we are looking for shorts with a target of 1.2681:

In fact, the price passed 95% of the ATR on the day before correcting. Like many things in the markets, the 70% ATR level is not perfect, but it is systematically fixed and more often than not it works.

More importantly, a clear take-off line (50%), a clear partial close/take profit target (70%) and a clear volatility expectation (100% ATR) make consistent planning possible.

ATR Pivots - our proprietary indicator

By now, most readers are probably thinking how tedious it is to calculate all these values ​​every day and constantly be aware of how much the price has moved over a certain period of time. Luckily, we have a solution: ATR Pivots.

Red lines are weekly pivots. Orange lines are daily pivots. There are always 3 pivots above the daily and weekly open (black line) and 3 pivots below the open.

All pivot levels are set by the user, but in light of what we have already said, the logical levels for pivots are:

+100% ATR

+70% ATR

+50% ATR

Opening Week/Day

-50% ATR

-70% ATR

-100% ATR

Thus, by minimally cluttering the charts, you always highlight key levels. Here is a list of inputs. All edited:

Also, we have created a file with indicator settings to make it easier to start using it.

Using the ATR to Measure Trend Strength

The benefits of using ATR don't end with entries and exits. Surprisingly, the ATR can also help measure the strength of a trend. To illustrate this logic, let's take 2 currency pairs:

– AUDUSD, ATR 74 pips

– GBPUSD, ATR 127 pips

If we want to play USD weakness and we want to choose the strongest entry trend, how do we compare the performance of the two pairs? They are different in nature: they have completely different volatility profiles.

In order to compare apples to apples and make a logical and consistent decision, we can “scale” their performance with their ATR. How to do it?

(Current high - current low) / 20-day ATR = Current day performance in %

The higher the value (when comparing an uptrend) or the lower the value (when comparing a downtrend), the stronger the corresponding trend.

Traders who don't consider ATR are really only measuring absolute momentum, which makes it hard to compare apples to apples. Relative momentum this is one possible solution .

Here is a graph of the relative momentum values ​​of the main pairs:

Your turn

Using Average True Range in a logical and consistent way can help you:

• Avoid trades that have low chances to work well intraday or intraweek
• Avoid exiting a good trade too early or overstaying a trade
• Objectively analyze the quality of the trend.

All this is done for consistent, logical and safe trading.

How can you apply ATR to your trading?

about the author

Justin Paolini is a currency trader and team member at FX Renew, a provider of signals from ex-bank and hedge fund traders (or go free). If you like Justin's articles, you can

A complex and not very popular technical indicator average true range» shows the level of volatility of the analyzed instrument.

Average true range(eng. average true range, ATR) is a technical indicator that is designed to measure the volatility (or volatility) of a financial instrument. Initially, it was intended for commodity futures, because. at the time of development (1978) in the US markets, commodities and raw materials were much more volatile than stocks.

Learn more about the average true range

The average true range was not designed to predict the direction of the tool. Furthermore, average true range is not intended to make any prediction generally. The average true range is solely intended to describe the current volatility (volatility) of the instrument, and is made as an additional technical analysis tool that should only be used in combination with other technical indicators and overlays. In other words, average true range - auxiliary tool for analysis financial instrument.

It is important to understand that, due to the fact that the calculation of the indicator is based on absolute numbers, indicator values ​​will differ depending on the value of the analyzed financial instrument. Those. for a share worth 20 kopecks, the indicator will show one number, and for a share of 400 UAH. - other.

Recall that the true range is the larger of the following three differences:

• Max - Min
• Max - Close Prev
• Close Pre - Min

For calculating the average true range, which - I warn you - is not easy and tedious (statisticians will love it), TR (i.e. true range) is of immediate importance.

Calculating Average True Range

To fully calculate the indicator value, you must wait until n periods have passed so that there is enough data for calculation. The indicator value can be obtained only starting from period n. In period k (cat.>n), the ATR value will be:

ATR k= /n

Immediately the question of recursion: how to calculate the value for the previous period ATR k-1 or even in the 14th period? Very simply: in period n, i.e. the first period with a full indicator value, the ATR value will be equal to the arithmetic average of the previous TR values. And the first TR is calculated as simply the difference between the high and low in that period.

Applying Average True Range

Naturally, the average true range should be used only for volatile instruments, i.e. those that are quite variable. But it's important to remember that ATR is not a forecasting tool, but there is a tool only for describing the current situation (i.e. volatility). Therefore, this indicator should be used only as auxiliary tool in your technical analysis.

The level of volatility, of course, can be very useful in the analysis, but it will give much less than, for example, the Bollinger bands corridor.