As you select the market you’ll engage with, the next thing you need to do is to familiarize yourself with Average True Range (ATR) Forex Indicator. This is essential, for the reasons that this simple tool is very handy when it comes to measuring market “volatility”.
Forex Volatility Definition
Let's start with a simple and practical definition of the term "volatility". The term volatility means, in its simplicity, a strength or fierceness of market moves. The easiest way to measure volatility is to just take a look at any chart. If you will see huge wicks and bodies of candles, huge market moves, then there is a high volatility. In opposite, if you will spot a very calm and mostly sideway traded market, then there is a low volatility.
Founder of the Average True Range (ATR) Forex Indicator
Developed by J. Welles Wilder, one of the most innovative minds when it comes to the field of technical analysis, this indicator can help traders to enter and exit trades easily. The best part is, traders can use this indicator on any market they desire successfully which provides them a huge chance of increasing their trade’s profitability.
Why do you have to use ATR on all your trades?
Although Average True Range (ATR) does not send out buy or sell signals, it plays a major role of measuring market volatility which is a huge factor to execute profitable trades. The price volatility is very useful when it comes to deciding on where a trader will set a stop loss or profit target (or if he even should open a trade or rather not).
This is very handy on your part as a beginning trader for the reason that when a price volatility is high, it is a sign that you should not use the tight stop-loss because there is a huge chance that it can be breached and your order will be closed. As a result, you will lose money. In opposite - when considering profit-targets, it would be a pity to set too small profit-target if there would be a potential to take higher profits from the market.
And if the volatility is low and you are deciding where to put your stop-loss order, you can set a tight stop-loss for you to survive. Because a breakout of the low volatility period would mean a strength of bulls or bears, and the right time to close the order. And when setting profit-targets, it is always better to take what the market offers rather then trying to shake the market for a higher profits.
Remember: adapting to the current market structure and volatility is the key to a long-term profitable forex trading!
How can you use the Average True Range (ATR) Forex Indicator?
What are you waiting for? Don’t just rely on luck and plain instinct, familiarize yourself with the Average True Range (ATR) Indicator and consider how it can be useful for you.
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