Average True Range (ATR)

The Average True Range is an indicator used for determining the volatility of a pair in the Forex market.

The ATR is used for technical analysis is other markets too such as stocks, options, and futures. What the ATR does is simple. It measures the range of price movement for a specific price period.

History of the ATR

The ATR was developed by J. Welles Wilder. He started with the concept called True Range.

The true range is the greatest of these three calculations.

A. current high – the current low
B. current high – the previous close
C. current low – the previous close

The greatest of these three calculations is used to determine the True Range (TR).

The ATR Calculations

The ATR is the “Average True Range”. Essentially the ATR is the average of a specified number of period’s ATR. If you are using a 14 period ATR. The ATR will be the average of the past 14 period’s TRs (True Ranges).

Volatility


(you can click on the image to enlarge it)

As illustrated in the picture above, the ATR indicates volatility. When there is a lot of volatility, the ATR is high. When there is little volatility, the ATR is low.

The chart above is a daily EUR/USD chart and volatility is a little lower recently. You can tell by seeing it has been ranging more than trending.

There reasons for a low ATR and low volatility could be many. The current situation with the EUR/USD is this: good news for the Euro and for the USD has been common recently, almost balancing each other out.

Along with positive news releases, there is a lot of uncertainty with the Euro and the USD. The Euro is currently going experiences severe issues with Spain and Greece and leaders want to see more fiscal union. The USD recently passed QE3 and the U.S. Presidential Election is taking place next month.

All these things affect Forex market expectations, which affects the amount/direction of the money being traded, which affects volatility, which affects the ATR.

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Average True Range (ATR)

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  • Jackie W. Cox

    Hey thanks Casey for showing me the Disquise communications that I have sent!!! That was really awesome!!!! Any time that you want to send me an email feel free!!!! I’ll check it most likely everyday and send you one back!!!!! Everyone of you have truly been an inspiration too me!!!!

  • It is a good thing for traders to share thier trades with each other. That is why we use Jing. Take a look here for a tutorial http://winnersedgetrading.com/traders-tech-techsmith-jing-6/

  • Jackie W. Cox

    Casey I would love to show you a screen shot however I don’t know how to do that. Can You help? I’d love to learn how. I’m computer illeterate so to speak. Last night I was up 26 pips on the Eur/Usd however I made a few bad trades and got to uncomfortable n closed out some winners in the red and could only salvage 7.1 pips. I’m still trying to fine tune the 15 min candles. sometimes I do extreamly well and other times not so hot. Its all about risk n money management and patience. I still have to work on those.

  • Thanks sounds like a great strategy, can you show me a screen shot?

  • Jackie W. Cox

    Hey there Casey!!! Thanks for the question!!! When all my technicals line up Is a great way for an extremely High probability trade. Its almost a no lose situation. I like the trend the best since it really moves well with the 1 hour. I find my setup on it then i enter with the 15 min. I play the retracements to atleast the 30 sma or you could call it moving average too. some times I can play it all the way to the 100 sma. 30 is the most high probability I believe.When my technicals line up well at least 2 not the sma’s then I will usually make some good pips. I like trading the intra-day style and when the trend is in reall well and I think I’m threw trading and want to go to sleep I will take another trade and just go to bed. I love the London Market Open Strategy I have learned. When I wake up and If the trend continues well alot of times I will just close out with good profit and reinter later that night. I usually do really well when I sleep trade!!! lol I really do!!!!

  • Jackie how do you use the ATR with your trading do you have a specific strategy that you use?

  • Jackie W. Cox

    Thank you for the explanation of the ATR. It is one of the indicators that I use along with RSI and MACD and the 30, 50, and 100 sma or the ma.