How to read ATR in Forex - Average True Range Indicator Explained
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How to read ATR in
How to read ATR in Forex - Average True Range Indicator Explained
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The Average True Range (ATR) is a simple yet very effective technical indicator, developed by the American mechanical engineer J.Welles Wilder. In his 1974 book „New Concepts in Technical Trading Systems“, Wilder featured the Average True Range indicator. He also developled other extremely popular technical indicators, like the RSI, Parabolic SAR and the ADX (Directional Movement Concept).
Originally developed for stocks and commodities, this indicator can also easily be adapted to Forex. The ATR indicator provides an indication of price volatility in absolute terms, as Wilders was not interested in price direction for this indicator. Wilders recommends using a 14-period ATR on a daily time-frame. Simply put, a currency pair which has larger movements and higher volatility, will also have a higher value for its ATR reading. On the other hand, a currency pair which is trading sideways will have a lower ATR reading. These values are of big interest to traders, as they can easily gauge the price volatility and make better decisions about position sizing, and the size of stop loss and limit orders. In some cases, the ATR can be used as a confirmation for bullish or bearish reversals. A growing ATR value in the beginning of a possible reversal might be used as a confirmation signal, as it shows rising momentum of long or short positions.
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The Average True Range (ATR) is a simple yet very effective technical indicator, developed by the American mechanical engineer J.Welles Wilder. In his 1974 book „New Concepts in Technical Trading Systems“, Wilder featured the Average True Range indicator. He also developled other extremely popular technical indicators, like the RSI, Parabolic SAR and the ADX (Directional Movement Concept).
Originally developed for stocks and commodities, this indicator can also easily be adapted to Forex. The ATR indicator provides an indication of price volatility in absolute terms, as Wilders was not interested in price direction for this indicator. Wilders recommends using a 14-period ATR on a daily time-frame. Simply put, a currency pair which has larger movements and higher volatility, will also have a higher value for its ATR reading. On the other hand, a currency pair which is trading sideways will have a lower ATR reading. These values are of big interest to traders, as they can easily gauge the price volatility and make better decisions about position sizing, and the size of stop loss and limit orders. In some cases, the ATR can be used as a confirmation for bullish or bearish reversals. A growing ATR value in the beginning of a possible reversal might be used as a confirmation signal, as it shows rising momentum of long or short positions.
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