ATR Value Indicator For MT5
Table Of Contents:
- ATR Value Indicator For MT5
- ATR Value Indicator Introduction
- ATR Value Input Parameters
- ATR Value Components
- How to Interpret the ATR Value Indicator
- ATR Value Trading System
ATR Value Indicator Introduction
The ATR Value indicator for MT5 is a custom indicator designed for the MT5 platform. Its main purpose is to determine the most recent ATR value corresponding to the current open candle that the user can use in trade analysis, entry, or exit. This indicator is based on the renowned ATR indicator originally developed by market technician J. Welles Wilder. While the indicator under discussion does not show the historical changes in ATR, you can treat it as you would the built-in MT5 ATR.
The ATR is a volatility indicator and measures the average movement of price for a financial asset at a given timeframe. If you apply the indicator in an hourly chart, it will give you the ATR of the last x number of bars. The default number of bars or period is 14, but you can use any period of choice.
Normally, the ATR value is given in decimal format when the indicator is applied as an oscillator below the main chart. In this indicator, however, the ATR is expressed in terms of pips or points. Take note that the ATR is always a positive number. With this tool, you do not need to convert the ATR value from the decimal format to either pips or points, which is a handy little tool that can aid your trading.
ATR Value Input Parameters
The indicator comes with eight parameters in inputs that the trader can adjust according to his need. However, he must concern himself with only the first three variables to be able to make the most of this indicator. The last five variables only affect how information is presented on the chart. The input parameters with the default settings are listed below:
- Display Mode = Points
- ATR Period = 14
- ATR Multiplier = 2
- Text Corner = Right Upper
- Offset X = 30
- Offset Y = 30
- Text Color = Gold
- Text Font Size = 10
The Display Mode defines the type of ATR value that is displayed on the chart. The default value is Points, meaning the ATR value is shown in points. The other option is Pips, which most traders prefer to see and is equal to dividing points by 10. Keep in mind that the ATR value that is being displayed is applied to the current timeframe.
The ATR Period is the number of bars or candles considered in the computation of the ATR. This is the standard period for the ATR indicator. The ATR Multiplier is simply a number that is multiplied to the actual ATR value to get another value that can be used for other purposes such as setting the stop loss or take profit.
ATR Value Components
The ATR Value indicator provides three pieces of information based on the values set by the user in inputs. This information is outlined below:
- ATR multiplier
- ATR period
- ATR value
In the above image, the ATR multiplier of 100% is equivalent to setting the ATR Multiplier variable to 1, the ATR period chosen is 20, and the ATR value is expressed in terms of pips. The ATR value is what we are mostly interested in this indicator.
How to Interpret the ATR Value Indicator
As you might have guessed, this indicator shows only the ATR value of the current candle since that is the most important value that is used in entering trades. However, this value is derived from a data buffer that is shown as an oscillator below the main chart. In the above image, the built-in MT5 ATR indicator and this custom ATR indicator have the same input values. The difference is that the value of the MT5 ATR is given in decimal form, not pips or points.
ATR reflects volatility
The original ATR indicator was created to be used in trading commodities. At this time, the indicator can be implemented in all types of markets, such as stocks, indices, foreign exchange, etc. The ATR value reflects the level of volatility of any financial asset. A volatile market will have a higher ATR, while a silent or normal market will have a lower ATR.
ATR for trade entry
Market technicians use the ATR for both trade entry and exit, and it can be an effective tool to be added to a trading system. You can use the ATR to measure the volatility of any market in any timeframe. As the ATR does not provide information as to the direction of trend, traders often use it to confirm trade entries, not as a primary entry signal provider.
ATR for trade exit
Regardless of your entry strategy, you can employ the ATR for your exit plan. One familiar strategy that utilizes ATR for exit is the chandelier method. With this method, the stop loss is placed below the highest high (for long position) or above the lowest low (for short position) that was reached since the position was opened. The distance between the stop loss and the highest high or lowest low is a multiple of the ATR value such as 1, 2 or 3. As price moves in the trade’s favor, the stop loss is adjusted based on the same concept.
ATR for risk management
The ATR is also useful in setting the trade lot size, hence defining the trade risk. With this money management strategy, lot size calculation is dynamic. The user does not need to find areas on the chart such as swing points at which the stop loss can be placed because the stop loss depends on the market volatility at the time of entry. If the user wants, he can use either a fixed lot size for each trade with varying trade risks or a dynamic lot size with constant trade risk.
ATR Value Trading System
There are many ways to use the ATR in trading. In this article, a trading system is presented that will use the ATR as a confirmation tool for entering a trade in line with the trend. As depicted in the above graphic, this system employs the following indicators:
- 100 exponential moving average
- MACD (12, 26, 9)
- ATR (14)
To be able to use this strategy successfully, make sure that you adhere to the entry rules in the order presented below:
- Identify the trend with the 100 EMA.
- Check if the MACD is aligned with the trend.
- Trade with increasing ATR value.
- Open the trade and manage it.
The first step in this trading strategy is to identify the prevailing trend in the symbol and timeframe of your choice. In this example, we are looking at the EURUSD pair four-hour chart. At the area marked with two vertical lines, the trend is up because price is above the 100 EMA.
To increase the chance of entering a profitable trade, the MACD is used as a momentum indicator. Since MACD is above zero at the point of entry, MACD confirms the buy signal generated by the 100 EMA.
The last trade filter is market volatility, which is provided by the ATR. We want the volatility to increase for at least two candles before we open a trade. As you can see, the ATR line is sloping upward at the candles marked by the vertical lines.
Trade entry and management
The last part of the process is to open a buy trade after the second candle closes. You can set the lot size manually based on your risk management strategy. After trade entry, you can set the stop loss at the recent swing low. You can use any type of exit strategy you like. In this case, trailing stop using swing points seems to be a good choice.