ATR Channel MT4 Indicator: A simple guide

ATR stands for Average True Range which is an indication of the average movement of a financial asset over a given period of time. It uses the same concept as the Moving Averages but measures volatility instead of trend directions.

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What is the ATR Channel Indicator?

The ATR Channel is a great trading tool. The indicator forms a channel around the candlesticks or bars giving you a clear picture of what the highs and the lows of the market at any given time.

The channel is made by two ATR lines; one above the bars/candlestick (the red line) and the other below the bars/candlesticks (the blue line).

ATR Channel Indicator loaded on a trading chart

The indicator can be used on any timeframe making it a perfect choice for any type of trader. It is most useful to intraday and day traders as it helps them know how the market is likely to oscillate.

Customizing the ATR Channel Indicator

Experienced trades may want to try out different settings depending on their trading strategies and this would require customizing the indicator to fit their intended functionality. However, for the beginners, it would be advisable to use the indicator just as it is.

To customize the indicator, you will have to first understand the functions of the indicators’ inputs. You will have to understand what every input means to the functionality of the indicator and how changing it would affect the indicator.

The ATR is fairly simple; it only has three inputs: CalculateOnBarClose, UseMedianPrice and ATR Period. Altering the values of any of these inputs will affect the way the indicator is displayed.

 

ATR Channel Indicator inputs

To change the inputs of the indicator, you can simply double click on the ‘ATRChannel’ on the Navigator list or right click on the chart with ATR Channel already loaded, then click on the indicator list and double click on ‘ATRChannel’. On the custom indicator dialog box, in the input section, you will find the three inputs with their default values beside them.

Let’s look what each of the three inputs refers to and how to customize them:

  • CalculateOnBarClose

This is a function used in the program that calculates the value at the close of the bars/candlesticks. Its value is by default set as ‘true’. Changing the value to ‘false’ makes the channel narrower.

However, by keeping the value true, it means the indicator is using the values at the close of bars/candlesticks to form the channel. Otherwise (with the value set as false), the indicator uses the values at the opening of the bars/candlesticks.

Using the value of the close of a bar/candlestick makes the indicator to give a more updated indication of the market since the only data that remains unanalyzed is the data of the currently open bar/candlestick.

  • UseMedianPrice

This is a function used in the program that calculates the value at the middle (median) of the bars/candlesticks. Its value is by default set as ‘false’ precisely because the value of the other input the CalculateOnBarClose is set as ‘true’. If the two (CalculateOnBarClose and UseMedianPrice) are set as true at the same time the UseMedianPrice would cancel the effect of the CalculateOnBarClose.

Changing it to ‘true’ makes the channel narrower. However, by keeping the value as false, it means the indicator is using the values at the close of bars/candlesticks to form the channel.

Using the value of the median of a bar/candlestick makes the indicator to give a tighter indication of the market since the only data that remains unanalyzed is the data of the currently open bar/candlestick.

  • ATRPeriod

This represents the number of days through which the ATR should take into consideration as it calculates the average. By default, the period is set to 14 days.

You could change the period to whichever value you want. But for an intraday trader, 14 is the best. If you are a long term trader, you could consider making the period larger.

Using the ATR Channel trader to open positions

As evident on the chart, the indicator is not very complicated when it comes to interpreting its signals. While a single ATR would help monitor the market volatility of a given financial asset, the ATR Channel monitors volatility and helps the trader determine entry and exit points.

1.   Long positions

To place a long position, you would have to wait for the ATR channel to point upwards. By pointing upwards, the channel indicates a bullish trend and you can place a buy order (long position).

The two ATR lines help you in setting the take profit and stop losses.

Placing a buy order using ATR Channel Indicator

With the buy order, you should place a take profit at the level at which the red line terminates and a stop loss at the level at which the blue line terminates.

NB: Long term traders will require to use higher timeframes when placing their orders.

 

2.   Short positions

To place a short position, you would have to wait for the ATR channel to point downwards. By pointing downwards, the channel indicates a bearish trend and you can place a sell order (short position).

The two ATR lines help you in setting the take profit and stop losses.

Placing a sell order using ATR Channel Indicator

With the sell order, you should place a take profit at the level at which the blue line terminates and a stop loss at the level at which the red line terminates.

NB: Long term traders will require to use higher timeframes when placing their orders.

 

 

 

 

 

 

 

 

 

 

 

 

 

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