Markets.com Logo
euEnglish
LoginSign Up

What does the ATR indicator tell you?

Aug 28, 2024
3 min read
Table of Contents
  • 1. Interpretation of the ATR
  • 2. How to Use the ATR in Trading
  • 3. Benefits of the ATR

cfd-trading-contracts-width-1200-format-jpeg.jpg

A higher ATR value indicates higher volatility, while a lower ATR value implies lower volatility. Traders can use the ATR to assess the strength of price moves, as significant price movements accompanied by high ATR values suggest a strong trend.
 


Interpretation of the ATR


Generally, a high ATR value signifies increased market volatility, while a low ATR value indicates reduced volatility. It’s important to remember that the ATR does not indicate market trends, but rather measures volatility and price gaps. For a more complete analysis, combining the ATR with other indicators, such as the Average Directional Index (ADX)—also developed by Wilder—can provide insights into trend strength. This combined approach ensures that both trend analysis and volatility are thoroughly addressed in your trading strategy.

The ATR (Average True Range) doesn't offer directional signals like some other technical indicators. Instead, it measures market volatility. When the ATR value is high, it signifies increased volatility, whereas a low ATR value points to lower volatility.

Traders can use the ATR to gauge the strength of price movements. Significant price changes paired with high ATR readings typically indicate a strong trend. On the other hand, price movements with low ATR values might suggest a weak or consolidating market.
 


How to Use the ATR in Trading


1. Interpreting ATR Signals:
An increase in the ATR value signals rising volatility, which could indicate a potential trend or reversal in the market. Conversely, a decline in ATR suggests decreasing volatility, which might point to a consolidating or range-bound market.

2. Combining ATR with Other Indicators:
To enhance market analysis, traders often pair the ATR with other technical indicators such as moving averages, the Relative Strength Index (RSI), or the Moving Average Convergence Divergence (MACD). This combination can provide a more comprehensive view of market conditions.

3. Using ATR for Entry and Exit Signals:
Traders can leverage the ATR to set stop-loss and profit target levels. By multiplying the ATR value by a chosen factor (typically between 1 and 3), traders can position their stop-loss orders at a distance that accommodates current market volatility, helping to manage risk more effectively.

trader-investor-broker-using-smartphone-width-1200-format-jpeg.jpg


 


Benefits of the ATR


1. Volatility Measurement: The ATR provides a clear measure of market volatility, allowing traders to adjust their strategies based on current market conditions.

2. Enhanced Risk Management: Traders can use the ATR to set stop-loss orders more effectively, taking into account market volatility to manage risk better.

3. Versatility: The ATR is adaptable to a wide range of financial instruments and timeframes, making it a flexible tool for various trading scenarios.
 


In summary, the Average True Range (ATR) is an important technical indicator for assessing market volatility and managing risk. While it does not offer directional signals, combining the ATR with other technical indicators and fundamental analysis can greatly improve a trader’s insight into market conditions and aid in more informed decision-making. It’s crucial to recognize its limitations and use it as part of a well-rounded trading strategy. 



When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. 


Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
 


Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients. 

Frances Wang
Written by
Frances Wang
SHARE

Markets

  • Palladium - Cash

    chartpng

    --

    -0.16%
  • EUR/USD

    chartpng

    --

    -0.33%
  • Cotton

    chartpng

    --

    -0.01%
  • AUD/USD

    chartpng

    --

    -0.31%
  • Santander

    chartpng

    --

    1.36%
  • Apple.svg

    Apple

    chartpng

    --

    0.03%
  • easyJet

    chartpng

    --

    -0.47%
  • VIXX

    chartpng

    --

    -0.88%
  • Silver

    chartpng

    --

    -0.22%
Tags DirectoryView all
Table of Contents
  • 1. Interpretation of the ATR
  • 2. How to Use the ATR in Trading
  • 3. Benefits of the ATR

Related Articles

VisionWave Stock (VWAV) Surges: What Drives the VWAV Stock Prices?

VisionWave Stock (VWAV) Surges: VisionWave (VWAV) has gained significant attention in the stock market lately, with its stock prices surging. Investors and market watchers are keen to understand the factors influencing this upward trend.

Ghko B|about 16 hours ago

Ethereum (ETH-USD) Eyes $10K: How to Trade Ethereum CFD?

Ethereum (ETH) has been a major player in the cryptocurrency market, known for its smart contract functionality and decentralized applications (dApps)

Ghko B|about 16 hours ago

What Is Stellar (XLM): How to Trade Stellar (XLM) CFDs?

What Is Stellar (XLM): Stellar (XLM) is a decentralized blockchain platform designed to facilitate cross-border transactions and enhance financial inclusion.

Ghko B|about 16 hours ago
Markets.com Logo
google playapp storeweb tradertradingView

Contact Us

support@markets.com+12845680155

Markets

  • Forex
  • Shares
  • Commodities
  • Indices
  • Crypto
  • ETFs
  • Bonds

Trading

  • Trading Tools
  • Platform
  • Web Platform
  • App
  • TradingView
  • MT4
  • MT5
  • CFD Trading
  • CFD Asset List
  • Trading Info
  • Trading Conditions
  • Trading Hours
  • Trading Calculators
  • Economic Calendar

Learn

  • News
  • Trading Basics
  • Glossary
  • Webinars
  • Traders' Clinic
  • Education Centre

About

  • Why markets.com
  • Global Offering
  • Our Group
  • Careers
  • FAQs
  • Legal Pack
  • Safety Online
  • Complaints
  • Contact Support
  • Help Centre
  • Sitemap
  • Cookie Disclosure
  • Awards and Media

Promo

  • Gold Festival
  • Crypto Trading
  • marketsClub
  • Welcome Bonus
  • Loyal Bonus
  • Referral Bonus

Partnership

  • Affiliation
  • IB

Follow us on

  • Facebook
  • Instagram
  • Twitter
  • Youtube
  • Linkedin
  • Threads
  • Tiktok

Listed on

  • 2023 Best Trading Platform Middle East - International Business Magazine
  • 2023 Best Trading Conditions Broker - Forexing.com
  • 2023 Most Trusted Forex Broker - Forexing.com
  • 2023 Most Transparent Broker - AllForexBonus.com
  • 2024 Best Broker for Beginners, United Kingdom - Global Brands Magazine
  • 2024 Best MT4 & MT5 Trading Platform Europe - Brands Review Magazine
  • 2024 Top Research and Education Resources Asia - Global Business and Finance Magazine
  • 2024 Leading CFD Broker Africa - Brands Review Magazine
  • 2024 Best Broker For Beginners LATAM - Global Business and Finance Magazine
  • 2024 Best Mobile Trading App MENA - Brands Review Magazine
  • 2024 Best Outstanding Value Brokerage MENA - Global Business and Finance Magazine
  • 2024 Best Broker for Customer Service MENA - Global Business and Finance Magazine
LegalLegal PackCookie DisclosureSafety Online

Payment
Methods

mastercardvisanetellerskrillwire transferzotapay
The www.markets.com/za/ site is operated by Markets South Africa (Pty) Ltd which is a regulated by the FSCA under license no. 46860 and licensed to operate as an Over The Counter Derivatives Provider (ODP) in terms of the Financial Markets Act no.19 of 2012. Markets South Africa (Pty) Ltd is located at BOUNDARY PLACE 18 RIVONIA ROAD, ILLOVO SANDTON, JOHANNESBURG, GAUTENG, 2196, South Africa. 

High Risk Investment Warning: Trading Foreign Exchange (Forex) and Contracts For Difference (CFDs) is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Please read the full  Risk Disclosure Statement which gives you a more detailed explanation of the risks involved.

For privacy and data protection related complaints please contact us at privacy@markets.com. Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data.

Markets.com operates through the following subsidiaries:

Safecap Investments Limited, which is regulated by the Cyprus Securities and Exchange Commission (“CySEC”) under license no. 092/08. Safecap is incorporated in the Republic of Cyprus under company number ΗΕ186196.

Markets International Limited is registered  in the Saint Vincent and The Grenadines (“SVG”) under the revised Laws of Saint Vincent and The Grenadines 2009, with registration number  27030 BC 2023.

Close
Close

set cookie

set cookie

We use cookies to do things like offer live chat support and show you content we think you’ll be interested in. If you’re happy with the use of cookies by markets.com, click accept.