While so many different indicators and tools help traders to analyze the market along with the price movement and trend directions, the Average true Rate indicator will provide even deeper insights into how the asset moves.
ATR refers to the type of volatility indicators. It depicts the direction in which a trading instrument moves within a specific timeframe. Traders use it to confirm buy and sell signals. It may come in handy when detecting the best placement for the stop-loss order. As a result, the Average True Range indicator appears to be a flexible and effective tool to ensure safe and profitable day trading.
In this article, we will show you how to read the ATR indicator as well as how to download and integrate it with the MT4 platform at zero cost.
What Is the ATR Indicator?
The ATR indicator changes its direction depending on the asset price movement. In other words, when the price turns smaller or larger, the indicator moves up and down as well. So, you can observe not only the price movement but also the asset direction.
The indicator has evolved over time. Today, it offers a new way of ATR reading with calculations made every minute or when the specific period passes. The calculation timeframe will depend on the type of chart you use:
- A one-minute chart will depict ATR calculations made every minute.
- A daily chart makes calculations every day.
Despite the chart type and timeframes. All calculations form a continuous line that depicts the way volatility is changing over time. The ATR indicator is flexible enough to handle all calculations manually depending on the period you need to observe. In this case, the first thing you need to do is to calculate a number of true ranges. They include:
- The difference between the current high and previous close.
- The difference between current lows and the previous close.
- The difference between the current lows and current highs.
It does not matter if the difference is positive or negative. All you need is to detect the highest absolute value that is required to make calculations with the Average True Range indicator.
How to read the Average True Range Indicator?
First of all, we need to mention that the ATR indicator has initially been developed to trade commodities. However, it has evolved to let traders use it for indices, stocks, and other trading instruments that can experience extreme volatility.
Reading the Average True Range indicator is very simple. When the volatility is high, it generally comes with higher ATR and vice versa. Low volatility is usually associated with low ATR. The first and foremost reason why traders need to use this indicator is the ability to detect the best market entry and exit position. Besides, it helps to make accurate volatility calculations, which makes it a great tool to be used with different trading tactics along with other technical indicators. On the other hand, the ATR indicator lets you handle simple calculations.
Note: do not expect the tool to indicate the exact asset price direction. Use it to evaluate primarily volatility instead resulted in gaps and up or down move limits. What's more, you will need historical price data as well.
Chandelier Exit – The ATR Indicator Technique
We have mentioned earlier, that the Average True Range indicator is commonly used to identify the best market entry and exit points. Traders may apply several methods despite the decision they make. So, one of the most popular techniques is chandelier exit. Developed by Chuck LeBeau, it is used to determine the highest high and place a trailing stop in that area.
Also, individual traders can use the instrument for position sizing. Unless you are afraid to take the risk of the underlying market and risks that are associated with volatility. If not, the indicator will make it easy to specify the trade size in derivatives markets.
Steps to Download the ATR Indicator for MT4
Just like many other technical indicators for MT4, ATR is free to download, install, and add to your trading charts. No registration is required. You may use the link to install the indicator in several clicks:
The next stage is to integrate the indicator with the trading platform and have it installed in several easy steps:
- Extract the RAR file we have just downloaded.
- Enter MT4 and go to "File Menu".
- Find "Data Folder" and open it with a click.
- Then locate and open the MQL4 folder.
- Find "Indicators" and copy and paste the extracted file.
- Restart MT4 and choose Insert -> Indicators -> Custom -> ATR
Don't forget to restart the MT4 platform to have the indicator successfully integrated.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.