Advantages and disadvantages of using the ATR indicator

As I have already mentioned in previous publications, the ATR indicator moves forming waves and peaks, however, unlike the rest of the oscillators, it has the particularity of projecting the volatility of the market in the price movement.

As the price action makes larger or smaller movements either up or down, the ATR indicator becomes larger or smaller, an action that reveals the volatility of the financial instrument.

The ATR indicator serves as a guide to determine that the stock is entering a trend, and conversely if the average true range slows down it indicates a trend change.

The ATR indicator can be used in any strategy and timeframe, however, the ATR indicator is primarily useful in day trading strategies. Lower than standard settings offer less statistical data, which in itself makes the ATR indicator project greater sensitivity to the most recent price action movements, and therefore offer faster readings.

➊ The ATR indicator allows the possibility to change the configuration of periods depending on the characteristics of the price action according to the behavior of a given market in any time frame.

➋ Another advantage is that as the ATR line expands or contracts the distance between the stop and the closing price adjusts to equilibrium levels, providing the possibility to buy or sell and take economic profits.

➌ Using the wave and peak movements offered by the ATR indicator is of great help, as it allows to identify the inflection points of a given market.

➊ The biggest problem with the ATR indicator is that beyond indicating the volatility experienced by financial instruments, it cannot be assumed as a reliable signal to enter or exit the market.

➋ Low reliability of the waves of the ATR indicator line, this if we consider that the highest point is indicated by the peaks of the ATR indicator line for offering high volatility data.

Cory Mitchell How Average True Range (ATR) Can Improve Your Trading. Link