ATR Ratio Indicator

ATR Ratio is a modified version of the Average True Range indicator. It is a great tool for gauging market volatility. This article will discuss using the indicator in detail.

What is the ATR Ratio indicator?

The ATR Ratio indicator is composed of two different Average True Range levels. The short ATR is 7 periods, while the long ATR is 49 periods. The trigger level is set at 0.87 by default.

The indicator appears in a separate window with a blue line marking the trigger level. The tool helps traders gauge market volatility in shorter and longer periods. You can apply this tool to any trading instrument. Here’s how it looks on the chart.

ATR Ratio indicator
ATR Ratio indicator

ATR Ratio Indicator Strategy

The ATR Ratio indicator is quite simple to handle. Once you place the indicator on the chart, observe the red line representing the ATR. The direction and location of the red line signal the trend and volatility.

If the red line is pointed up, it shows higher volatility. Hence, the traders get alert and look for a potential trade setup. To make things easier, the ATR Ratio indicator plots a blue line representing the ratio of long and short ATRs.

If the red line crosses above the blue line, it indicates a bullish reversal. Similarly, if the red line crosses below the blue line, it shows a bearish reversal. Hence, the blue line acts as a pivot point.

ATR Ratio buy strategy

  • You should choose a 4-hour timeframe or higher.
  • You should wait for the red line to cross above the blue line.
  • You should wait for the bullish candle to close to enter.
  • You could place the stop-loss below the low of the entry candle.
  • You could place the take profit at the next key resistance level.
ATR Ratio indicator buy setup
ATR Ratio indicator buy setup

ATR Ratio buy strategy

  • You should choose a 4-hour timeframe or higher.
  • You should wait for the red line to cross below the blue line.
  • You should wait for the bearish candle to close to enter.
  • You could place the stop-loss above the high of the entry candle.
  • You could place the profit at the next key support level.
ATR Ratio indicator sell setup
ATR Ratio indicator sell setup

ATR Ratio pros and cons

Let’s take a look at some of the pros and cons of the indicator:

Pros

  • The indicator is freely available.
  • It is easy for beginners to use.
  • It can be applied to any asset.

Cons

  • The indicator is lagging.
  • Lower timeframes may generate false signals.

Conclusion

The ATR Ratio indicator can be a great companion for technical traders. However, every tool should be tested on the demo account, and risk management should be considered while trading.

Free Forex Robot