Many traders will use ATR as a way to determine their stops. It usually works like this:
Stop loss for a short trade = high of last candle + ATR value
Stop loss for a long trade = low of last candle – ATR value
In order to make it easier to visually see where those stops would be, I’ve created an ATR bands indicator. This indicator will show an upper and lower band around the price, showing where you can put your stops (or trail them in open positions).
Since a picture is worth a thousand words, here is an example of how it looks:
How Does This Indicator Help Me?
As you might know, ATR is a measure of the average true range of the price, meaning that it is a way to show the average volatility of an instrument.
So knowing that, we can use ATR bands in a number of ways:
- it’s an easy way to see where you can place your stop loss
- you can use a multiple of ATR as your target
- you can trail your stops alongside the ATR bands
Here’s an example of what I mean:
For now, I’ve added the following features, which can be configured using the indicator properties:
By default, this is set to 24 with the rationale that one day has 24 hours so that way, we’re getting the average price movement for the past day.
However, it could be useful to have a shorter ATR period, for example if you want to make recent price volatility more relevant.
This is simply a multiplier, so let’s say your current ATR value is 20 pips and you use a multiplier of 2, then the bands will be 40 pips on each side. By default, this is set to 1 (no multiplier).
ATR applied to
With this setting, you can choose whether the ATR bands are applied to the highs and lows of the candles or if you want to use the close price of each candle. Using the close price will naturally give you slightly more narrow ATR bands.
This is a simple offset parameter, like so many indicators have one. For example, if you want to have the ATR bands calculated based on the previous candle instead of the current one, you can use an offset of 1.
Only show for last X candles
With this parameter, you can choose to only show the bands for the last, say, 50 candles. Use this if you don’t want to have the bands show up on all of your chart and instead only show the bands for the most recent candles.
Next to the Metatrader 4 indicator, I’ve also created a version for TradingView, an online charting platform. You can find the indicator by clicking on the Indicators and Strategies button and searching for “SFL ATR Bands“.
Download and TradingView link
To state the obvious: I make no claims that this indicator will make you money and I’m not responsible for any kind of losses you incur as a consequence of using this indicator. That said, I hope you find it useful.
By the way, also check out my Daily ATR indicator!