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11.08.2019

*AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 20 :* 

ATR -(Average True Range )
Volatility Indicator

Leading Indicator, Lagging Indicator, Trend Following Indicator which are directly or indirectly related to forecast the trend and price direction But this is a Volatility Indicator which does not having any relation with Trend or Price, It indicate the volatility in security's price it means it focus on Ups and Down of the security in specific time frame.

ATR Calculation :-

ATR Calculation base on True Range Calculation

Method 1: Current High less the current Low
Method 2: Current High less the previous Close (absolute value)
Method 3: Current Low less the previous Close (absolute value)

Current ATR = [ (Prior ATR x 13)+ Current TR] / 14
- Multiply the previous 14-day ATR by 13?
- Add the most recent day's TR value?
- Divide the total by 14

Use of ATR in setting Stop Loss :-

When we add ATR indicator, it will be add in the bottom part of the Candlestick chart The Value of the ATR is showing average True Range (Calculation as per above formula) past 14 periods ATR will be helpful in any time frame, if we apply ATR in shorter time frame, the difference between current security price and ATR value will be less, while if we apply ATR in longer time frame the difference between security price and ATR value will be high
To set the stop loss with the help of ATR, at the time of planning the trade, if there is a buy trade then put the stop loss price as per the ATR value below the entry price and if there is the sell trade,put the stop loss price above the entry price as per the ATR value Generally traders multiply ATR value by 2 and then putting the stop loss to avoid frequently stop loss hit.

We discuss earlier that ATR is a Volatility Indicator, which does not indicate any trend direction or price direction, so it is advisable to use ATR Indicator with combination of some leading and trend following indicator like RSI, Bollinger Bands, MACD etc for more refine result.

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