What is ATR indicator and how it should be used.?
The real range (ATR) described is a technique indicator used to measure the volatility of a financial instrument. It usually represents the average real range of a period. Atr's creator is J. Welles Wilder, and in 1978 he introduced this indicator in his book "To make a profit with new techniques".
**How to use:**
ATR is usually used to measure the volatility of an asset and determine trend changes. Basically, it measures the width of price movements and uses this information to assess the power and continuity of the existing trend.
The ATR indicator calculates the average of the differences between the highest and the lowest asset prices for a period. This reflects the variability of prices over a certain period of time. A higher ATR value indicates that higher volatility and price movements are larger width.
ATR is often used to understand the volatility of asset prices and to determine stop-loss levels. It can also be used to determine trend turns; For example, when prices are under the ATR through the trend or on the atr on the trend return, this may be a sign of a potential trend return.
** Pros: **
1. ** Volatility measurement: ** ATR is an effective tool to measure the volatility of asset prices and can be used to understand the width of price movements.
2. ** Determination of Stop-Loss levels: ** ATR can help determine stop-loss levels because it evaluates the risk of potential, taking into account volatility.
3. ** Determination of trend turns: ** ATR can help determine trend turns, because it measures the width of price movements, which can help to assess the power and continuity of the existing trend.
** cons: **
1. ** Laging Nature: ** ATR can sometimes determine trend changes late, as it is calculated based on the time period of price movements.
2. ** Aderage alone: ** ATR can be more effective when used with other technical indicators. When used alone, it can sometimes produce false signals or may be misleading.
3. ** Sensitivity: ** ATR may vary depending on the period in which price movements take place. Therefore, it can give different results in different periods, which can be confusing.
4. ** Flexible parameters: **
The calculation parameters of the ATR indicator can be set. This provides flexibility to achieve customized results for different time periods or different volatility conditions. Investors can customize ATR's calculation period and other parameters according to their needs and preferences.
5. ** Portfolio Risk Management: **
ATR can be used not only for a single asset, but also for a portfolio. Portfolio managers can use the ATR indicator to monitor the volatility of different assets in their portfolios and to effectively manage the risk.
6. ** Strategy Development: **
ATR can be used to develop and optimize investment strategies. In particular, it may guide investors in areas such as identifying stop-loss levels, adjusting position sizes and identifying input/output points.
** cons: **
1. ** Delay: ** Atr can sometimes determine trend turns or market changes as delayed, since the price movements are calculated based on the periods in which the price movements take place.
2. ** Misleading signals: ** ATR, sometimes can produce misleading signals. The accuracy of the ATR may decrease, especially when the volatility is high or the market trend is uncertain.
3. ** Technical Analysis Addiction: ** The use of ATR alone may be insufficient or misleading in some cases. Investors can get more reliable results by using other technical analysis tools.
4. ** Optimization difficulty: ** Adjusting the calculation period of ATR and other parameters can be difficult for some investors. In addition, it may take time to determine the most suitable parameters for each asset or market condition and may require experience.
Consider the plus and cons of the ATR indicator in more detail:
** Pros: **
1. ** The ability to measure volatility: **
ATR measures the width of movement of asset prices over a certain period of time. This allows investors the opportunity to understand volatility and learn about the power of price movements.
2. ** Determination of Stop-Loss levels: **
ATR can help determine stop-loss levels. Investors can determine the stop-Loss levels and manage their risks effectively using the volatility information provided by ATR.
3. ** Determination of trend turns: **
ATR can also be used to determine trend turns. In particular, the increase or decrease of ATR for a certain period of time may provide information about the power or weakness of a trend and indicate possible trend turns.
4. ** Flexible parameters: **
The calculation parameters of ATR can be set. This allows investors to achieve customized results for different market conditions or asset classes.
5. ** Portfolio Risk Management: **
ATR can be an effective tool in managing the risk of portfolio. Investors can reduce the risk of portfolio by monitoring and evaluating the volatility of different assets in their portfolios.
** cons: **
1. ** Delay: **
Since ATR is calculated based on the periods of price movements, it can sometimes determine trend turns or market changes as delayed.
2. ** misleading signals: **
ATR can sometimes produce misleading signals. The accuracy of the ATR may decrease, especially when the volatility is high or the market trend is uncertain.
3. ** Technical Analysis Addiction: **
The use of ATR alone may be insufficient or misleading in some cases. Investors can get more reliable results by using other technical analysis tools.
4. ** Optimization difficulty: **
Setting the ATR calculation period and other parameters can be difficult for some investors. In addition, it may take time to determine the most suitable parameters for each asset or market condition and may require experience.
The ATR indicator can help investors in measuring volatility, identifying stop-loss levels, monitoring trend turns and managing portfolio risk. However, it should be interpreted correctly and used with other analysis tools. It is also important to determine the appropriate parameters for each asset or market condition.
