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Wednesday, 10 July 2019

How to Use the ATR Indicator

The ATR or Average True Range indicator is one of the indicators made by Welles Wilder and is often used to measure market volatility. Introduced in 1978, this indicator was originally created to analyze volatility in the commodity market, but over time, ATR can also be used in the forex market.

 Initially, not many forex traders used the ATR indicator. However, this is more due to not many traders who know how to use the ATR indicator. Moreover, some traders who tried to use it made a lot of mistakes because they positioned it as an Oscillator.

This indicator was again popular when Richard Dennis and the Turtles (as the Turtle Trading system user) introduced him as one of the decision makers in entering the market. Turtles actively use it as a measure of volatility, Stop Loss distance, Take Profit distance, etc. Even in his book at the Ways of Turtle, it was explained that every day the Turtles would be given a sheet containing a list of the volatility of each market instrument at that time.

 How to Use the ATR Indicator
As mentioned above, the ATR indicator is mainly used to measure the range of market volatility. Low ATR values ​​indicate that market conditions are quiet, while high ATR values ​​indicate that market conditions are crowded. But this high volatility does not mean prices are rising or vice versa.

1. Determining Stop Loss

Most traders use the ATR indicator to determine the Stop Loss level in a position. This method of using ATR as a Stop Loss was introduced in the Turtle Trading system. In determining its Stop Loss, Turtles considers that the level of volatility in the market is very influential. Turtles themselves use a distance of 2 ATR for Stop Loss. Some other sources use distances of up to 3 ATRs.

2. Distance Increases Position Entry

The Turtles also use the ATR indicator as a determinant of the addition of positions so that profits can multiply. In addition to moving the Stop Loss, the students trained by Richard Dennis add their position to each trade that goes according to plan. The provisions are the same as when shifting Stop Loss to trailing stop.

3. Determining Estimated Trading Time

A function that is not widely known is how to use the ATR indicator to determine the estimated trading time. In determining this trading time, 2 main components must be owned.

Also To Read : How to Use Bollinger Bands Indicators

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