Just came across an interesting thing in trading. Most people focus on MACD or Moving Averages, but forget that there’s another indicator that can be very helpful. That is the Average True Range or ATR. This is a tool I use to measure price volatility, not to determine the direction, but to understand how strong the price movement might be.

ATR is a technical indicator developed by J. Welles Wilder in the 1970s, but most people still don’t fully understand it. The importance of the average true range is that it tells us about the level of price volatility, regardless of the market day. When ATR is high, it means the price is swinging a lot. Conversely, if ATR is low, the price is moving less. Simply put, the average true range is a way to measure market turbulence over a period.

Its operation is quite straightforward. When the ATR line expands higher, each candlestick becomes larger, with prices moving quickly and reversing unexpectedly. This signals that you should avoid making quick decisions at this time. But when ATR runs in a low zone, the price hardly moves, indicating a period to wait for a rebound.

What makes ATR very useful is that it helps precisely set Stop Loss and Take Profit points. For example, if ATR is at 8.2 points, you can set your Take Profit at the current price + 8.2 and your Stop Loss at the current price - 8.2. Or, if you want a wider range, multiply ATR by 2. This method helps make your risk management more systematic.

In day trading, the average true range is a great tool because it helps us understand whether the price will be volatile or quiet during each period. In the morning when the market opens, ATR often spikes high, then gradually decreases as momentum fades. This is a short-term trading opportunity, but it requires experience to find the right entry and exit points.

The difference between ATR and Momentum is that ATR measures volatility, while Momentum measures acceleration. When ATR is high but Momentum is low, the price is volatile but lacks strength. Conversely, if ATR is low but Momentum is high, the trend is clear and strong.

Using the average true range is very simple. Nowadays, you don’t even need to calculate it manually because it’s available in almost all trading platforms. The most common setting is ATR 14 days, calculated from the True Range of the past 14 days. The basic formula is TR = the highest value among [(H-L), |H-C|, |L-C|], then take the average of TR over that period.

In summary, if you haven’t used ATR yet, try combining it with other tools like MACD or RSI. It will help improve your trading decisions, especially in managing risk properly. No more guessing randomly.