Average True Range Value Indicator

The ATR indicator measures the volatility of a market by calculating the average size of price movements for a given asset over a set period. On MT4, the ATR displays as a line moving up and down in a separate indicator window:

High ATR value: Indicates a highly volatile market.

Low ATR value: Indicates low volatility or range-bound conditions.

It’s important to note that the ATR does not indicate market direction. Many traders mistakenly try to use it to predict trends. Instead, ATR is best used for volatility-based strategies, such as identifying breakouts or setting stop losses.

How the ATR Is Calculated

The ATR is based on the True Range (TR) of an asset, which is the greatest of the following three values:

Current high minus current low

Absolute value of current high minus previous close

Absolute value of current low minus previous close

The ATR then averages these True Range values over a set period (default is 14 periods in MT4) to create a continuous line representing the market’s average volatility.

How to Trade Using the ATR Indicator

The ATR indicator is versatile and can improve multiple aspects of your trading strategy:

 Explosive Breakouts

Low-volatility periods often precede significant market moves. Use the ATR to detect these periods:

Apply the ATR on the weekly chart.

Wait until the indicator hits multi-year lows.

Identify support and resistance levels.

Enter trades when a breakout occurs.

Tools like the FXSSI Support and Resistance Indicator can help you pinpoint these key levels.

 Setting Stop Losses

ATR helps prevent premature stop-outs by accounting for typical market fluctuations:

Check the current ATR value when entering a trade.

Multiply it by a factor (1.5, 2, or 3).

Add/subtract this value from your entry price to determine the stop-loss level.

Optionally, trail your stop-loss with the ATR value to protect profits in trending markets.

 Setting Take Profit Levels

The ATR can also inform realistic take-profit targets:

ATR indicates the average price movement for a given period.

For example, if the GBPNZD daily chart shows an ATR of 140, expect around 140 pips of movement.

Combine ATR-based take-profit with market structures like swing highs/lows and support/resistance for optimal exits.

Who Should Use the ATR Indicator?

The ATR Value Indicator is suitable for all forex traders, regardless of experience or trading style. It complements trend-based indicators without being dependent on price direction, making it a valuable addition for:

Day traders and scalpers for volatility assessment

Swing traders for setting realistic stop-loss and take-profit levels

Beginners learning market behavior and risk management

Conclusion

The ATR Value Indicator for MT4 is a simple yet powerful tool for assessing market volatility and improving trade management. By combining ATR with trend indicators and support/resistance analysis, traders can enter and exit trades more confidently, avoid low-volume traps, and optimize risk-reward strategies. Free to use and easy to apply, it is an essential addition to any MT4 trader’s toolkit.