How to Use the Average True Range indicator in Fx?

What is ATR?

The Average True Range and known by its acronym in English and half Spanish legitimate range, helps the operator to know in clear and comprehensive way what is the current market volatility, this indicator was released almost 32 years ago by Welles Wilder, the original poster, who had the idea of ​​development as well as other indicators for the convenience and ease of operators of the currency market so they can see the unstable stock market consolidated and the values ​​at the end of the day. More easily, the Average True Range indicator can show what is the strength or weakness of a slope and leaves the average daily value points of a given pair. It should not be taken as an indicator or signal generator to buy or sell at a particular time in the Forex market. Moreover, this indicator even though a bit of a contradiction, if used in conjunction with strategies, may show what is the best time to enter or exit the market. ATR does not measure the changes in direction or changes direction, and duration of volatility.

On the other hand, the ATR indicator is used as a principle for other more complex indicators, such as the RWI (Randon Walking Index), among others.

How to use the ATR indicator?

The creator of this indicator uses 3 ways to get your value as follows:

• The absolute value of a distinction between the larger amount and the last closing price.

• The absolute amount subtracting smaller amount of day and the amount of the last closing

• The subtraction between the largest number that appears at the time and the smallest number that is also present in that period.

To make it easier to understand the creator of this indicator established a formula that will be useful to operate and get the value of ART:

Formula: ATR = Moving Average (TRJ) (n)

TRJ = The maximum value of 3 values: | High - Low |, | Alto - CierreJ-1 |, | Low - CierreJ-1 |

In a more extensive, after reviewing the above formulas, if the largest amount of 3 results (High-Low, High, Close, Low-Close) is the disparity between the highest and the lowest value real real then in this example the result will be the ART. If this amount is not higher should continue to determine the greatest of all and thus get the true range.

After this operation developed and acquired the desired results, you must assign an average of Average True Range ATR acquired from the N days, where N is = 14 or 13. In general the ATR is used with periods of 14 days and can be measured by day, week or month. It is always advisable to use this flag set an order to reduce losses to avoid surprises, but based on the volatility of the market and take care of their gains acquired. We do not recommend using this indicator over long periods because it can give inaccurate results.

How to place a "Stop Loss Order? based on ATR, for better gains:

The following is an example of another way to use the ATR indicator and thus achieve better benefits. Usually the operator uses an order of "Stop Loss? established at the time of operation to prevent further losses. Commonly, experts believe that Forex market data support or resistance as a rule should be used to set a stop loss order, but also when using the ATR indicator this may vary. In the example described below is necessary to first establish a stop loss order 25% of the average true range of day and number of ART was reported that day was 140, so that continues to perform a multiplication of the two data, which will result in 140 x .25 = 35 pips. Already acquired this information you could place a "Stop Loss Order? of 35 pips from your entry point.

Understanding the function of the ATR indicator when taking actions in the market:

For example, if the result of ATR shows low values ​​indicate that the market is in a landscape of low volatility and very low price range. If instead the opposite occurs and the ATR would give you high-value or high, which means that the market is in a stage of greater volatility and price ranges presented itself longer.

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