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How To Use The ATR MT4 Indicator

Date: Friday, June 26, 2020 9:07 AM EDT

There are plenty of ways to use the ATR indicator on the MT4 trading platform. However, today we will be highlighting the main points that can be the most advantageous for beginner FX traders.

The ATR is commonly used to assist day traders to identify signals, prior to entering a trade. You could also use it to determine the placement of a stop loss or take profit order.

Before we dive into how to do that, however, let’s have a quick look at a few main features.

What is the Average True Range?

The ATR indicator was developed by J. Welles Wilder, the architect behind several technical indicators such as the Relative Strength Index (RSI), the Average Directional Index, and the Parabolic SAR.

The Average True Indicator (ATR) measures volatility and shows how much an asset has moved during a given time span (in pip terms).

As we know, volatility can be a driving force when trading an asset. Therefore, the assistance of the ATR can provide realistic possibilities with achieving trading targets.

Setting Up Your ATR

Wilder suggested that 14 periods are ideal, but this may vary depending on your own Forex trading strategy.

Swing FX traders would benefit using the ATR 7 period on a daily chart, as this identifies the range for the past week. Whereas, for example, intraday traders would be more inclined to use 14 periods on a 1-hour chart.

How to Trade with the ATR

The ATR can help identify breakouts as well as trend reversals since usually, most FX traders are waiting for breakouts to place trades.

If the ATR falls to a low reading, then a breakout or reversal can occur. Next, the ATR range can be identified for a particular asset, and a trade can be most likely placed.

As per the chart below, once a false break forms, then a breakout is successful.

atrNow, when the downtrend or uptrend has been detected, stop loss and/or take profit targets can be identified. This will determine when, based on your risk-reward scenario, should the trade close to your satisfaction. And that can be either with a win or a loss.

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