AVERAGE TRUE RANGE (ATR) INDICATOR

C H E A T S H E E T

What is ATR?
• The ATR is a market volatility indicator.

• Typically calculated by taking the 14-day average of a series of trading ranges.

• The ATR tells you the condition of the market, not direction.

EXAMPLE:

BEARISH ENGULFING PATTERN

What ATR can help you do

• Identify entry levels on a pullback • A rising or high ATR can indicate a strong trend

• Identify stop-loss levels • A falling or low ATR can indicate a range market

• Identify take-profit levels • Predict potential trend reversal

• Predict potential breakout

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 HOW TO USE THE ATR
Example of what the ATR looks like in MT4:
(Add the ATR: Insert > Indicators > Average True Range)

ATR Strategy (example) Understanding the market

Entry, stop, and take profit target: Trending, consolidating, breakout:

• A 2x ATR pullback for entry. • When the ATR rises, it can indicate that the
market is trending.
• A 3x ATR profit target.
• When the ATR moves down, it can indicate that
• Always have a positive risk-to-reward
the market is consolidating.
ratio (1.5 in this example).
• When the ATR breaks out from the ATR range,
• Multiple ATRs can be used to scale out of
that could indicate that the market may break
positions: 1x ATR, 2x ATR & 3x ATR.
out into trend.

* ATR should be used in conjunction with other technical indicators

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The information provided within this PDF is for educational purposes only.