Risk Management with ATR Indicator

Setting the right place to plot out stop loss could be a complicated. If we plot the stop loss too much , we run the risk of using a much bigger loss , but if we make our stop loss too small , we run the risk of being touched of the trade before market price trades in the way we wanted it to trade. This problem brings many Forex traders to indecision , even in some cases some forex traders do not placing stop loss on their trades. This mistake can be a dangerous trading, and could bring traders fall. This is where Average True Range or ATR can help Forex traders in these problems.

ATR indicator is made to help Forex traders in watching volatility. As the value of Average True Range decrease or increases , so will the value of average true range.

In the trading example above , the green zone marked on the market price as well as the bottom portion of the Forex market chart.

As market price traded making movements in the green area, the forex technical indicator below the market price chart properly showed this volatility. Average True Range traded smaller to show the lessened volatility in market price. Also notice the reading for Average True Range indicator in the upper, left corner of the Forex indicator.

The reading on Average True Range ATR indicator is at 0.00285 . This is in pips showed in the same price format as the foreign exchange pair. So, for AUDUSD , in which price is ar 1.0435 and ATR indicator reading of 0.00285 is 28.5 pips.

If ATR were at .00418, that would be 41.8 pips. And if ATR is at .01295, that would be 129.5 pips. ATR Average True Range indicator will always be expressed in the format of price.

Setting Stops with ATR Average True Range Indicator
After a Forex trader understands how to use Average True Range ATR indicator, much of the legwork in trading the indicator is already done. If we look in the 4H forex chart above , Average True Range ATR indicator AUDUSD was trading 28.5 pips.
In this case , Forex traders can find to plot the stop loss level ar 28.5 pips - the value of Average True Range ATR technical indicator at the time of the trade.

A forex trader could plot their risk level to 2 times the ATR indicator reading. Forex trader can finding at opening an AUDUSD position from the example above would be looking at stop of 57 pips. Or , if Forex trader want to be more aggressive can find to plot ATR indicator at half of ATR indicator value. In the AUDUSD chart above, that would be a stop of 14 pips. If this stop loss level too close to current price , Forex trader can find to customize their stop in being more aggressive conservative , setting the stop loss at multiples of the ATR indicator reading.