Using ATR to Measure Volatility and Set Trading Risk Parameters
Summary
The article explains how Average True Range measures price volatility without indicating market direction. It derives true range from the current high-low span and gaps relative to the previous close, then averages true range over a chosen period. A EURUSD price series illustrates the calculation, and the article explains how ATR readings rise and fall with volatility rather than with bullish or bearish direction.
It presents simple ATR-based rules for classifying volatility strength, comparing current ATR with its prior value, and deriving stop-loss and take-profit levels. It also sketches how these ideas can be implemented as MQL5 automated systems. The numeric strength cutoffs given are examples tied to the instrument and period; the text explicitly says such levels may need to vary. ATR is presented as a supporting tool for risk and trade management, not as a standalone directional signal, and the article provides no performance study establishing profitability.
Key ideas
- True range is the greatest of the high-low span and the two distances from the previous close.
- ATR summarizes recent volatility and does not reveal whether price is trending up or down.
- The article proposes comparing ATR with thresholds or its previous value to classify volatility conditions.
- ATR-based distances can inform stop-loss and take-profit placement and position sizing.
- Thresholds and strategy results require instrument-specific testing before live use.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.