The concept of Average True Range, commonly referred to as ATR, is a measure of the volatility of a security, as well as a tool for the management of money. The value of the ATR is the largest of the three following distances:
- the distance between the closing of the past and the maximum of today
- the distance between the closing of the past and the minimum of today
- the distance between the maximum and the minimum of today
The ‘Average True Range is a moving average of the ranges of values. In order to use the ATR effectively, you must ensure that there is an adequate sample of data taken into account. For example, to obtain a value of a day or two to the ATR is not sufficient to provide a ‘reasonable indication of security. Considering that to use this indicator takes at least 10 days in the averaging process, only in this case, the ATR provides a statement about the daily movement of currencies.
L ‘ATR is usually the value of ATR (X), where X is the number of days used in the calculation of the moving average. The number of periods that is selected allows us to obtain an accurate value. The ATR is an indicator that can be used quite effectively to find the best spot to exit the market. The ‘use of the ATR can find the exit from the market using our stop-loss standard, for example 10%.
If a currency pair moves by 5% per day on average, then with a stop loss of 10% we can move the best, in a special way using the ATR. To use ATR for exits from the market, usually a multiple of the ATR is used to secure a sufficient space between the movement of exit from the market price and normal value of the currency pair. Therefore, the ATR and without any changes, you might get very close to the stop and in any case have the assurance that they can still have a space of negotiation which to move and behave naturally.