The forex education is probably the most important activity in the daily involvement of a trader on the forex market. Truly, a very well educated trader who has knowledge will certainly have a much better chance to reach the success.
As forex signals provider realizes the importance of forex education and will try to contribute with a series of articles starting from the indicator Average True Range.
The Average True Range ("ATR") is a measure of volatility it means that shows how much the price of an asset has been moving over a period of time.
It was introduced by Welles Wilder. Used as a component of many indicators and trading systems.
Welles Wilder has found that high ATR values often occur at market bottoms following a "panic" sell-off. Low Average True Range values are often found during extended sideways periods, such as those found at tops and after consolidation periods.
The Average True Range can be interpreted using the same techniques that are used with the other volatility indicators. The average true range indicator is an oscillator, meaning the ATR will oscillate between peaks and valleys. The ATR has no upper or lower limit bounds.
It helps traders predict how far the price of an asset may move in the future and is also useful when deciding how far away to place a stop loss or a profit target.
The ATR indicator is usually shown on a chart as a line. When the line goes up, this means that the volatility of the asset in increasing. When the line goes down, this means that the volatility is decreasing. Is very important to remember that the ATR does not show you which direction the asset is moving.
Traders use the ATR to get an idea of how far an asset's price is expected to move on a daily basis. This information can be used to determine how far away a profit target/stop loss can be placed from the entry. For example, if the ATR is showing a value of 60 pips and the trend that you are observing has exceeded 40 pips, then the trend has a higher probability to continue for 20 pips more.
The other unique characteristic of the ATR is that the value of the indicator is based on the price performance of the asset.
Wilder started with a concept called True Range (TR), which is defined as the greatest of the following:
Method 1: Current High less the current Low
Method 2: Current High less the previous Close (absolute value)
Method 3: Current Low less the previous Close (absolute value)
Typically, the Average True Range (ATR) is based on 14 periods and can be calculated on an intraday, daily, weekly or monthly basis.
Because there must be a beginning, the first TR value is simply the High minus the Low, and the first 14-day ATR is the average of the daily TR values for the last 14 days. After that, Welles Wilder sought to smooth the data by incorporating the previous period's ATR value.
Current ATR = [(Prior ATR x 13) + Current TR] / 14
- Multiply the previous 14-day ATR by 13.
- Add the most recent day's TR value.
- Divide the total by 14
The average true range indicator is a volatility measure of a stock’s performance. Below are the key ways traders use the indicator:
Gauging a stock’s volatility
Stop Loss/Exiting a Trade
Using the ATR value is optimal for placing a stop loss, because it allows you to place your stop loss the maximum distance away and avoid any market noise, whilst using the shortest stop loss possible to do so. As the ATR gives you a good indication of how far the price will move, you can set your stop loss accordingly. By setting your stop loss away according to the daily range of the asset's price movement, you can effectively avoid market "noise" – temporary price movements up and down as the price moves in an overall direction.
Using an ATR setting lower than 14 makes the indicator more sensitive and produces a more active moving average line. An ATR setting higher than 14 makes it less sensitive and produces a smoother reading. The ATR indicator can be set to different time periods that affect how sensitive the indicator is. The standard setting for the ATR is 14, which means that the indicator will measure the volatility of a price based on the 14 most recent periods of time.
Using a lower setting gives the ATR indicator a smaller number of samples to work with. This makes it much more sensitive to recent price action and will give a faster reading.
Using a higher setting has the opposite effect, resulting in a much smoother average range that tends to stay relatively unchanged over long periods of time.
When changing the ATR settings, it is important to check whether your changes are actually improving or worsening your trading results.
In the context of forex education proposed to traders to test the ΑΤΡ indicator and το experiment with him. It is the safest way to draw their own conclusions.
As forex signals provider realizes the importance of forex education and will try to contribute with a series of articles starting from the indicator Average True Range.
The Average True Range ("ATR") is a measure of volatility it means that shows how much the price of an asset has been moving over a period of time.
Welles Wilder has found that high ATR values often occur at market bottoms following a "panic" sell-off. Low Average True Range values are often found during extended sideways periods, such as those found at tops and after consolidation periods.
The Average True Range can be interpreted using the same techniques that are used with the other volatility indicators. The average true range indicator is an oscillator, meaning the ATR will oscillate between peaks and valleys. The ATR has no upper or lower limit bounds.
It helps traders predict how far the price of an asset may move in the future and is also useful when deciding how far away to place a stop loss or a profit target.
The ATR indicator is usually shown on a chart as a line. When the line goes up, this means that the volatility of the asset in increasing. When the line goes down, this means that the volatility is decreasing. Is very important to remember that the ATR does not show you which direction the asset is moving.
Traders use the ATR to get an idea of how far an asset's price is expected to move on a daily basis. This information can be used to determine how far away a profit target/stop loss can be placed from the entry. For example, if the ATR is showing a value of 60 pips and the trend that you are observing has exceeded 40 pips, then the trend has a higher probability to continue for 20 pips more.
The other unique characteristic of the ATR is that the value of the indicator is based on the price performance of the asset.
Wilder started with a concept called True Range (TR), which is defined as the greatest of the following:
Method 1: Current High less the current Low
Method 2: Current High less the previous Close (absolute value)
Method 3: Current Low less the previous Close (absolute value)
Calculation
Because there must be a beginning, the first TR value is simply the High minus the Low, and the first 14-day ATR is the average of the daily TR values for the last 14 days. After that, Welles Wilder sought to smooth the data by incorporating the previous period's ATR value.
Current ATR = [(Prior ATR x 13) + Current TR] / 14
- Multiply the previous 14-day ATR by 13.
- Add the most recent day's TR value.
- Divide the total by 14
How to Use the Average True Range Indicator
The average true range indicator is a volatility measure of a stock’s performance. Below are the key ways traders use the indicator:
Gauging a stock’s volatility
Stop Loss/Exiting a Trade
Using the ATR value is optimal for placing a stop loss, because it allows you to place your stop loss the maximum distance away and avoid any market noise, whilst using the shortest stop loss possible to do so. As the ATR gives you a good indication of how far the price will move, you can set your stop loss accordingly. By setting your stop loss away according to the daily range of the asset's price movement, you can effectively avoid market "noise" – temporary price movements up and down as the price moves in an overall direction.
Changing the ATR settings affects its sensitivity
Using an ATR setting lower than 14 makes the indicator more sensitive and produces a more active moving average line. An ATR setting higher than 14 makes it less sensitive and produces a smoother reading. The ATR indicator can be set to different time periods that affect how sensitive the indicator is. The standard setting for the ATR is 14, which means that the indicator will measure the volatility of a price based on the 14 most recent periods of time.
Using a lower setting gives the ATR indicator a smaller number of samples to work with. This makes it much more sensitive to recent price action and will give a faster reading.
Using a higher setting has the opposite effect, resulting in a much smoother average range that tends to stay relatively unchanged over long periods of time.
When changing the ATR settings, it is important to check whether your changes are actually improving or worsening your trading results.
In the context of forex education proposed to traders to test the ΑΤΡ indicator and το experiment with him. It is the safest way to draw their own conclusions.
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