Understanding ATR

On AUD/USD chart ATR reads 0.0005. What does that mean is it a pip value of .5 of a pip or is it price. I am not understanding how to use the reading to say, set a stop loss 1.5 ATR from current price Long, as an example.

at what price would I set it?


It is the average change in price. Therefore, it is also a specific number of pips.

If the current price is AUD/USD = 0.68721, you should know that the number 2 in the fourth decimal place represents 2 pips, and the number 1 in the fifth decimal place represents 1/10 of a pip.

Exactly the same pattern appears in the ATR figure you posted.

If the ATR = 0.0005, the number 5 in the fourth decimal place represents 5 pips.

A stop-loss at 1.5 ATR from the current price, protecting a LONG position, would be 7.5 pips below the current price.

Man, you have no idea how grateful I am for that simple and clear explanation. Its been doing my head in for days. Too many videos and Coffee. LOL Thanks you very very much. :grinning:

Is it just me or is the ATR 1,227 pips? Surely not?

The ATR is confusing, but the figure in brackets at the far left, is the ATR for where your cursor is. In this case the last candle. If you move your cursor along the line, you will see that figure change. So therefore the ATR is 14 pips.

Arrrgh… edit. I just realised I was looking at the period you have the ATR set to. ie 14. So your assumption is correct (I think) 1227 pips.

Happy to be corrected though.

Thanks for the reply, the 14 is my chosen time period, as in the previous 14 candles.


The ATR figure is, indeed, 1227 pips. Why such a large number? Because the USD/MXN price is large.

USD/MXN = 18.9449 (on your chart) can be thought of as: $1 = 189,449 Mexican peso pips.

1227 pips is a tiny percentage of such a large number of pips.

Specifically, the 1227-pip ATR figure that is troubling you is less than 2/3 of 1% of the USD/MXN price.

With exotic pairs, like USD/MXN, all the metrics tend to look strange, compared to the majors.

Here is a screen-shot I took a little while ago, in which I expanded the view to show only the last 14 daily candles on the USD/MXN chart. I added the daily range (high-low) for each of the 14 days. As you can see, the value of the ATR(14) for the past 14 days (1136 pips on my chart) appears perfectly normal, in the context of the daily ranges – as it must, because it is the average of those ranges.

(click the image to enlarge it)

When a new candle opens, ATR’s tend to get suddenly distorted, as the 14th previous day’s range is dropped from the average, and the new day’s zero range is factored into the average. This distortion gets eliminated as the day wears on, until an accurate ATR reading is displayed just prior to the close of the current day’s candle. Then the distortion occurs again, as the next day’s candle replaces another previous candle.

Here’s a tip —

If you work with daily charts in the evening, soon after a new daily candle has opened, you can get a more useful ATR figure if you use the previous day’s ATR.

Thanks for another fantastic explanation. I’m starting to see why people avoid trading exotic pairs…

It is a very useful indicator in trading as it serves to measure price volatility. With the ATR you can estimate how much the price will move on a normal trading day